There are currently 1 million Chinese people and 5 million Americans with at least 1 million USD in assets, or what the luxury, property, and financial industries classify as “High Net Worth Individuals.” These HNWIs are a lucrative segment and one where brands are eager to increase their marketshare.
The wealthy in these nations have benefited from the rise in the economic growth in their respective countries, but also from the cultures they have been brought up in. In China, wealth accumulation practices, hard work ethics and striving for a better life have been ingrained in the Chinese psyche.
In the United States, the spirit of the “American Dream,” the desire to succeed in life through hard work and entrepreneurship, and the belief of an equal opportunity for all, has been embodied by many Americans since the nation came into being.
While these cultures and traditions have largely remained, the wealthy’s spending patterns have changed. At Agility, all our research points in the same direction: the Chinese are spending more and becoming more globalized in their spending choices, following the political and cultural opening of the PRC economy. We don’t see this trend changing anytime soon.
On the other hand, different economic sources state that Americans are spending less after the wake of 2008 financial crisis and that they are saving more than they are spending.
The statistics reveal a lot. In 2016, the Chinese contributed to 30% of global personal luxury goods sales, whereas Americans contributed to around 23%. In contrast, the Chinese made up 3% of the global personal luxury good sales in 2007 and Americans made up 34%.
At Agility, we have been conducting our annual Affluent Insights HNWI Luxury Study year on year to look at the changing mindsets of HNWIs in China and the United States, in order to predict the short term future of HNWI spending. What we have found this year are some new trends that brands need to pay more attention to.
Chinese HNWIs are worlds apart from American HNWIs when it comes to luxury spending
There is a gaping 41% difference between Chinese HNWIs (86%), and American HNWIs (45%), in terms of future aspiration to buying luxury items, which showcases the extent of the differences between the appetite of consumers in these two markets.
Similarly, Chinese HNWIs are far more likely than American HNWIs to prefer purchasing luxury products online, while they are travelling, and are much more willing to buy luxury items from the grey market.
Chinese HNWIs are much more likely to aspire to offshore property investments
While the majority of HNWIs in both China and the United States save a notable portion of their income (likely due to the Chinese culture and current pro-saving trend in the United States), spend more on travel than on luxury goods, and donate a notable proportion of their income to charity, only 18% of American HNWIs are actively looking to invest in overseas property, as compared to 56% of Chinese HNWIs.
This further shows how international the Chinese have become when it comes to their investment choices.
Local fashion brands dominate the American market, while European brands dominate the Chinese market
Ralph Lauren, Coach, and Calvin Klein, which are all American brands, make up the top luxury fashion brands owned by American HNWIs. On the other hand; Chanel, Dior, and Armani make up the top 3 luxury fashion brands owned by Chinese HNWIs.
In addition, it can be seen that both Prada and Gucci are among the top 3 brands planned to purchase in the next 12 months, which means that it is likely that both brands will rise in their rankings by 2018.
American HNWIs contribute a much higher amount to US luxury sales than their Chinese counterparts
From our data analysis we uncovered that Chinese HNWIs contributed US$ 9.5 billion last year to global personal luxury goods purchases (including luxury fashion, jewellery, and watches), while American HNWIs contributed US$ 14.4 billion.
Another insight we uncovered is that Chinese HNWIs contribute 12% of sales by Chinese personal luxury goods consumers, whereas American HNWIs contribute to 24% of sales by American personal luxury goods consumers, a major difference in the demographic makeup of luxury consumers. This is a crucial insight for brands that they need to pay attention to when building their strategies in these two different markets.
What does this mean For brands?
By 2030, China will take the number 1 spot in the global economy in terms of Purchasing Power Parity, replacing the United States which will take the number 2 spot.
Due to China’s population size and growing economy, there is no doubt that Chinese consumers will be the main consumers of luxury goods in the future, trumping spending by American consumers by the billions.
Our analysis shows that 1 in 4 American luxury consumers are HNWIs, while only a small fraction of Chinese consumers are HNWIs.
What this means is that in order to boost the American luxury goods market, brands need to either start focusing more on 1) attracting the American non-HNWIs to purchase more luxury goods, or 2) boosting the sales of luxury goods among American HNWIs or 3) developing a range of products that are still luxury but in more affordable price ranges.
Nevertheless, one particular challenge remains: there is a a pro-saving sentiment gaining ground in the United States, and this is an overall broader issue for luxury brands to address. Perhaps one option is increasing their appeal to non-American visitors and tourists to boost up demand.
A version of this article originally appeared in Luxury Society.