Burberry, which heavily promotes events such as the "London in Shanghai" show featured above, is set to benefit from its mass appeal in China. (Burberry)
With a rising middle class and slowing luxury sales growth, a new report by Exane BNP Paribas released yesterday concludes that China’s high-end goods market is going to see a “mass luxury bias” when it comes to future winners in the race to woo Chinese consumers.
Across all sectors, luxury brands are poised to profit off products offered for an accessible price point to China’s rising tide of aspirational consumers, says the new report entitled “Luxury to the People.” The paper argues that three factors are influencing this market shift. First, it states that high-end consumer spending and penetration are already “above Western standards” in China, meaning that skyrocketing growth rates for ultra-luxe brands will be much harder to come by. Furthermore, China’s leaders have prioritized economic development for a large portion of the population, and the number of members of the middle class is set to see a “massive rise.”
The brands in the best shape to handle this shift include those with a “mass luxury” DNA owned by conglomerates Swatch and LVMH, as well as Burberry and Prada, according to Exane. In the case of watches, Richemont’s “quintessential mega-brand” Cartier will “take care of aspirational demand,” while the more accessible Montblanc will benefit from rising upper-middle-class income levels. The report notes that although China currently has a “high-end bias” when it comes to luxury watches, rising middle-class incomes can boost the cheaper brands in the years to come.
On the mass luxury auto front, Exane believes that demand for entry-premium vehicles will be “the single most significant driver of volume expansion.” The report states that Mercedes-Benz maker Daimler will pick up in China after spending years in third place behind rivals BMW and Audi, noting that the company has fixed distribution problems and is forging ahead with its Chinese joint-venture partner BAIC.
Regardless of price point, luxury brands still need to have a certain cachet, and the report warns that any companies targeting the mass segment face a major risk of “trivialization.” Finding the balance between exclusivity and ubiquity when targeting an upper-middle-class market will be a major challenge for these brand in China, but those who do it correctly are set to reap major rewards.