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After heading into the red last year amidst a market slowdown, China’s luxury market decline sunk even further in 2015, according to Bain & Company’s annual industry report.
As Chinese consumers continued to opt to make their luxury purchases abroad, Bain found that the value of mainland China’s luxury market declined by 2 percent to 113 billion RMB in 2015. The decline was driven by large slumps in men’s watches, clothing, and leather goods, says the report.
The bright spot for the global luxury industry remains Chinese spending overseas. Although China’s economic growth is slowing and the country’s anti-corruption campaign continues, Chinese consumers still upped their luxury spending abroad by 10 percent in the past year. Japan was a main beneficiary of this trend, with the report stating that Chinese luxury spending in the country increased by over 200 percent. Favorable exchange rates and lower prices also made South Korea, Europe, and Australia popular shopping destinations, while spending in Hong Kong and Macau dropped by one-quarter.
This increase in travel spending didn’t lead to an increase in daigou shopping, however, which is likely a welcome development for luxury retailers. According to Bain & Company, the daigou market contracted to become worth about 43 billion RMB after being hit by efforts to contain it, including increased customs restrictions and a weak RMB. In addition, cross-border sales websites contributed to the daigou decline, and accounted for 48 billion of 293 billion RMB spent by Chinese consumers on luxury overseas in the past year.
“We saw notable changes in where and how Chinese consumers acquired luxury goods last year. Buying overseas has been a trend for years, but destinations have changed, and daigou is declining because of multiple and converging drivers from major industry players, including the government,” says Bain partner and report author Bruno Lannes. “Our research found that the industry is quickly adapting to these challenges in an effort to drive more luxury consumption at home through strategies such as global pricing and a greater focus on fashion.”
As Chinese spending on the mainland continued to decrease, brands have been focusing on reducing their store footprint and focusing on exclusivity, according the report. It has several additional recommendations for brands to cope with new market conditions in 2016, including a strengthened focus on digital platforms—80 percent of survey respondents “said they normally get information on luxury brands from the internet or apps,” according to the report, while “60 percent identified social media channels Weibo and WeChat as their online source for information on luxury goods.” In addition, brands should focus on appearing “younger” and more fashionable to appeal to a more sophisticated clientele that’s increasingly interested in original design and heritage.
“There are plenty of growth opportunities for those with more exclusive and fashion collections, digital platform engagement and digital content creation, as well as with pricing that encourages Chinese consumers to spend locally,” says Lannes.