Online penetration has played a significant role in how various luxury categories have been affected. Sales of jewelry and leather goods showed the most resilience, declining only 10-15 percent, while fashion and lifestyle categories shrank 15-20 percent, the report, ‘Setting a New Pace for the Growth of Personal Luxury in China’, noted.
According to a new report by Bain & Company, China’s personal luxury sales are set to contract 10 percent year-on-year (YoY) in 2022. The country’s five years of steady growth have come to an end due to the impact of the COVID-19 lockdown and weakening consumer sentiment. However, positive conditions are expected to return before the end of the first quarter of 2023.
The report identifies three major trends that could influence the luxury market’s rebound. The expansion of VIC (very important clients) in China’s luxury market was one of them, as the economic downturn affected entry-level luxury customers more than high-net-worth individuals. The duty-free ecosystem, including Hainan and the China Duty Free Group, was also cited as a trend, although duty-free sales in Hainan have declined due to COVID restrictions in 2022. Finally, the report touched on global pricing strategies, as most brands did not attempt to set prices between China and the rest of the world, resulting in significant price differences between China and Europe.
Bain & Company expects growth to resume in 2023 as China recovers from the pandemic, with consumer fundamentals in China still intact. The firm projects that China will see 2021 sales levels between the first and second half of 2023, but brands must address the price gap between China and Europe before international travel resumes. Brands that understand the nuances of China’s luxury market will succeed in the long run, the report says.
“With COVID abating, luxury spending will recover as mall traffic improves and consumer sentiment returns. We expect to see 2021 sales levels between the first and second half of 2023,” said Weiwei Jing is a Hong Kong-based partner at Bain & Company. “While optimism abounds, there are also risks. Brands need to address the price gap between China and Europe before resuming international travel. In addition, as more Chinese HNWIs are living outside of China, luxury brands must provide excellent experiences everywhere in the world.”
Fibre2Fashion News Desk (KD)