Few Surprises In Bain & Co’s Latest China Luxury Market Study

Little Change In Top Aspirational Brands And Shopping Habits, Although Seeds Of Change Are Starting To Appear

Dior has made a strong push in the Shanghai market this year, with the city providing the backdrop for David Lynch's "Lady Blue Shanghai" short film

Dior has made a strong push in the Shanghai market this year, with the city providing the backdrop for David Lynch's "Lady Blue Shanghai" short film

This week, Bain & Co. released its newest China Luxury Market Study. As the study is being widely covered in the media, we’ll spare the “top 10” lists and try to focus on some of the less predictable results that appeared in this new study.

As expected — and echoing the results of this year’s Hurun Report study on top brands — French and Italian luxury brands continue to dominate the Chinese market, with the top five brands (most of which are European, with the exception of Hong Kong’s Chow Tai Fook, Japan’s Shiseido, and America’s Tiffany & Co.) in each luxury category accounting for around 50% of sales. Also predictable is the finding that Louis Vuitton, Chanel and Gucci remained the “most desirable” luxury brands in China this year.

Prada, Versace, Burberry, Zegna and Armani entered or improved their rankings in Bain’s list of top three brands “likely to be purchased” among consumers this year, although much of this is likely due to the increasing number of boutiques these brands have opened this year. Also similar to last year’s findings is the figure that the vast majority (67%) of growth this year will have come from new customers.

This indicates two things: that China is supply-driven (which, again, calls back to the speed of brand expansion), and consumer loyalty is low. This isn’t terribly surprising, considering consumer sophistication in top-tier cities is apparently outpacing brand outreach, and as more newly wealthy consumers load up on brands like LV and Gucci, “early adopters” are likely to move on to less “mass market” luxury brands. (Previously on Jing Daily)

The really interesting trends that Bain identified in its new study are the increase in domestic shopping, the growing importance of the Internet as a source of luxury product information, and localized brand-building. Other trends, including the key position that “gifting” plays in the China luxury market, consumer demand for better service, and the importance of second- and third-tier cities have been covered well by Jing Daily and other China-focused outlets regularly over the past 11 months.

As Bain notes, the increase in domestic spending (as opposed to shopping in Hong Kong or overseas) has been a key trend this year. Although domestic shopping still makes up less than 50% of luxury spending among Chinese consumers (44%, to be exact), the study notes that this is changing as more brands have focused on providing latest collections in the mainland market, including lower-ticket items in mainland inventories, and reducing operating margins to offset the tax difference. Going on, Bain identifies five main reasons Chinese shoppers will choose to shop locally rather than overseas: a desire to be perceived as a “VIP,” a better shopping experience, better size availability, access to service after sales, and impulse. As expected, the two main reasons Chinese shoppers will purchase luxury items overseas remain lower prices and a broader product selection.

Another interesting finding is the growing importance of the Internet as an information source. Bain found that 60% of potential shoppers get their information about luxury goods online — up from only around 25% in 2006 — which makes the Internet the second most popular source of information after magazines (72%). We’ve seen a much more focused effort by several digitally savvy brands to invest in online outreach in China, although some have been far more successful than others.

The third interesting trend, one that we’ve watched closely this year, is that of localization at the city level. In the last year, brands like Chanel and Prada have homed in on Shanghai as their top market for localization, with Chanel’s “Paris-Shanghai” fashion show exemplifying its Shanghai-centric approach to the China market, and Prada designing outfits for staff at the Italian Pavilion at the Shanghai World Expo and roping in artist Yang Fudong for the “First Spring” short promotional film. Additionally, brands have focused more on local CSR (corporate social responsibility) efforts this year, with potential shoppers responding positively to events like Cartier’s “Singing Song for You” project, Hermes’ “Beichuan Rose Vally – Hermes Rose Garden,” and Gucci’s “New Vision, New Hope” event.

Download the entire Bain & Co study here (PDF).

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