China to account for 65% of world’s luxury market growth by 2025
According to a study by McKinsey, by 2025 China will account for 40% of the global expenditure on personal luxury goods, and will have generated 65% of the world market’s growth from 2018 to 2025, driven by the rise in spending power of the country’s middle class. According to the forecast, in 2025 Chinese consumers will spend €159 billion (CNY1.2 trillion) in personal luxury goods, compared to €102 billion today. This increase mirrors above all the generational transition taking place on the market.
The generation born in the 1980s is still the main driver of the Chinese luxury goods market. It consists of 10.2 million luxury goods purchasers, and was the main beneficiary of the Chinese economy's explosion. It spends on average €5,500 per year on luxury goods, notably to demonstrate its economic success. In the 80s generation’s wake, the generation born in the 1990s with its 6.7 million luxury goods consumers is expected to be the next, more discreet but still powerful growth driver for the Chinese luxury market. These consumers spend on average €3,330 per year on luxury goods, as much as those from the generations born in the 1960s and 1970s.
The 90s generation is by and large financially supported by its parents but, according to McKinsey, it will gradually gain in influence. Half of the '90s generation began to take an interest in luxury goods purchases only last year, and another 42% made their first luxury purchases in the last two to three years. According to the study, the reason for this gradual awakening is that only 13% of buyers born in the '80s and '90s grew up in a luxury environment.
McKinsey believes that, as these generational bridges are built, a vast opportunity will open up for those luxury goods brands which will be able to adopt the appropriate communication strategy. This tends to confirm the fact that Western brands, often a century or so old and massively benefiting from their aura with wealthy Chinese, will have to deal with a growing stream of competitors, including Chinese ones.
Another generational finding of the study is that the '80s and '90s generations, driven by the engagement culture fostered by social media, are much faster than others in their purchasing decisions. Of the consumers born in the '80s and '90s, 60% decide on a purchase in the six days that follow their discovery of a new luxury product. Of consumers from previous generations, 31% decide within 4-6 days, and 57% decide during the following week. Of these luxury goods purchases from all generations, 92% are still made in-store. However, according to the study, the share of online purchases is forecast to grow to 12% by 2025.
“While some [luxury] brands reported disappointing results due to weakening Chinese demand, LVMH and Cartier reported an acceleration of their sales in the final quarter of last year. This chimes with the notion that the Chinese luxury goods market is one in which ‘the winner takes all’, a trend which is best reflected in the composition of the local fashion market.”
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