China’s luxury market looks set to stabilize even as consumers become more discerning and sophisticated, according to the fifth annual Ruder Finn and IPSOS joint China Luxury Forecast released today, which also finds that Chinese customers are increasingly setting their sights on shopping overseas and online.
The 2014 Forecast polled 1,800 luxury consumers across China and Hong Kong, getting detailed accounts of the way in which they spend. The report covers China with 25 percent of respondents in first-tier cities, 32 percent from second-tier cities and 27 percent from third-tier cities, all with annual incomes averaging RMB 290,000.
Main signs of Chinese consumers’ growing sophistication are a high demand for unique items and expectation of better retail service, which are also major factors driving these shoppers overseas.
Authenticity, price, and, most interestingly, uniqueness were highlighted as the main reasons for shopping abroad, with the percentage of respondents looking for unique purchases rising from 41 percent last year to 49 percent this year. Executive Director of IPSOS Simon Tye notes this to be a major change in the attitude of buyers. “The last time we did this survey, Chinese buyers were looking for information. But now they are looking for connection,” he says. “They are more discerning, they discriminate a lot more, and they are asking for a lot more empathy. The Chinese are beginning to ask ‘do you really understand my needs?’” Managing Director and Senior Vice-President of Ruder Finn China Elan Shou adds to that, “Chinese buyers are no longer followers. They used to follow the brand and follow the trends and now they are saying, here is what I need.”
Another main reason many Chinese consumers are shopping overseas is the fact that poor customer service at home is not meeting their rising expectations for quality service. A staggering 92 percent of respondents in China and Hong Kong complained about luxury shopping services on the mainland, and preferred to do their shopping in Hong Kong for bags, jewelry and beauty, while Europe was the preferred choice for wine and watches. Another complaint was that advisors were not knowledgeable enough in their products.
This desire to find a brand and, by extension, products that resonate with them has also led buyers online. Top reasons to visit luxury websites now include learning about the brand’s history, news, prices, and manufacturing details.
There is also more shopping being done online. While brand boutiques remain the most popular channel of purchase for mainland Chinese and Hong Kong consumers, both groups now show greater confidence in making purchases online. Websites gaining in popularity include Nordstrom, Net-a-Porter, Taobao, Zhenping.com, and Yoox.com. A key factor to online purchases by mainland buyers include after-sales support, with 81 percent of respondents noting this as their top priority followed by easy returns at 43 percent. While Hong Kong buyers were more concerned with easy access, the key to online purchasing for Chinese buyers revolved around trust, with 52 percent noting the importance of word-of-mouth reliability.
The easy access to online information also translates into mobile platforms, with more buyers turning to brands’ apps for info on luxury. Forty-three percent of mainland respondents in the study stated that they have downloaded apps, while 38 percent intend to. These apps allow buyers to become more closely identified with the brand. Shou adds, “The social media side makes it pretty clear what the Chinese want. Just look outside and you’ll see everyone on their phone. You can see where the market is going and how they are open to it.” Ultimately, the report noted the need for more mobile support elements to strengthen e-commerce.
In the coming year, fashion and beauty are the categories that consumers most plan to spend more on in the next 12 months, with 50 percent expressing plans to spend more on beauty and 52 percent more on apparel. According to Shou, beauty has become more popular because in China’s gift-heavy culture, “beauty products make great gifts.” In addition, “Men’s cosmetics in particular is also a booming market—and they make for great gift options as well.” She adds, “The key is [the beauty industry’s success] is the feeling of luxury at an affordable price. When you look at makeup or cosmetics it’s more affordable than apparel but you still have that feeling that it’s a luxury item.” According to Tye, “Beauty has been very clever in terms of making you feel like you can have a slice of luxury.”
While the report demonstrates the stabilization of the luxury market, Shou and Tye both note it still won’t be a simple climb to the top. “One of the things [brands need to do] is to stay very, very true to their heritage. Case in point, Chanel. Their story is so strong and really resonates. There’s truth and a lot of clarity about where the brand stands. So you have to be very clear, whether you are a heritage brand or a contemporary brand.”