5 Predictions for China’s Luxury Industry in 2016

As 2015 comes to a close, we’re not only looking back at the year in review for our year-end coverage, but also analyzing what lies ahead for China’s luxury industry in 2016. Based on the developments in the industry we’ve been seeing over the past year, here are our predictions for what luxury brands have in store: 1. Traveling Chinese luxury shoppers will continue to stay in Asia. While outbound Chinese travelers have boosted luxury sales in both Europe and the United States, the lion’s share of them continue to travel around Asia thanks to convenience, ease of access, and limited vacation time. Japan crushed the competition this year in terms of Chinese traveler growth thanks to a weak yen and complications for many other destinations—including South Korea’s MERS crisis, Hong Kong’s anti-mainland protests, and safety concerns about Thailand and Southeast Asia. Chinese shoppers are set to fan out to a wider range of destinations in the coming year as South Korea recovers, Taiwan-mainland links strengthen after the historic Ma-Xi meeting, and burgeoning tourist spots including Cambodia and Sri Lanka invest big in marketing to Chinese travelers. Their preferences will be determined not only by safety issues such as terrorist attacks, but also currency fluctuations and political issues. 2. Daigou will take a hit, but it won’t die yet. Although the Chinese government has taken several concrete efforts to narrow the cost difference between foreign goods sold abroad and those sold domestically, this price gap spurring the country’s enormous gray market hasn’t been eliminated. Official policies to spur buying at home this year have included the announcement of two rounds of tariff cuts, the development of duty-free shopping, and a tougher crackdown by customs on smugglers. However, a massive number of Chinese travelers (and students) are making huge profits by selling luxury items from abroad over their WeChat accounts, and it’s going to be impossible for customs to intercept the vast majority of small-scale sellers. Only a handful of luxury brands—including Chanel and Tag Heuer—opted to lower their China prices over the past year even as currency fluctuations widened the price difference. As long as it remains profitable to sell and a bargain to buy daigou items, the market will remain strong in the coming year. 3. Health, wellness, and sportswear to become significant luxury competitors in China. As Chinese fashionistas have embraced the global street-style trend of pairing Nike sneakers with designer brands and companies like Lululemon move in on the China market, the competition posed by health and wellness and “ath-leisure”-related spending will become even more pronounced for luxury brands. In China, this spending shift doesn’t just include gym memberships (and hot new outfits for requisite gym selfies), but also increased investment in products like foreign nutritional supplements, imported foods, air purifiers, and pollution masks as awareness of food safety and pollution issues grow. And this doesn’t include the huge amounts that travelers are willing to spend on medical tourism for everything from plastic surgery to maternity. While the ultra-wealthy are heading to doctors in the United States, Japan, and Europe, China’s middle class is also upping their medical tourism spending in more affordable places like South Korea and Taiwan. 4. Fakes will remain a thorny issue for brands. With a host of criticisms against Alibaba over fakes sold on its platforms this year—including a lawsuit from Kering and criticisms by a number of international commerce groups—it may seem that Alibaba might finally clean up its act. Alibaba has made several key efforts to fight its reputation for counterfeits this year, including the recent hiring of a former Apple executive as its new head of intellectual property enforcement. But even if the e-commerce giant seriously cleans up its act in 2016, fakes are still being produced en masse in China and pop up on any social media platform—especially WeChat. 5. China’s anti-corruption campaign will live (at least) another year. After the indictment of over 100,000 people for corruption over the past three years, the CCP isn’t done yet with its ongoing anti-corruption campaign that has hurt sales of luxury brands. The campaign was still going so strong this year that the character for “incorrupt” (廉) was named the Chinese character of 2015. The campaign is likely to rage on in 2016, as the Chinese government recently sent out its requisite warning for officials against spending extravagantly over Chinese New Year.

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5 Predictions for China’s Luxury Industry in 2016