Bain & Co: The Next Growth Engine for Luxury? Gen Z

Aside from macro-factors like the ongoing U.S.-China trade dispute and China’s economic slowdown, Chinese consumers remain the backbone of the global luxury industry. The country has contributed 18-20 percent of overall growth during 2019 so far, while other markets (except parts of Asia) have experienced no more than single-digit growth, according to the latest report from the global consultancy Bain & Company that was published this Thursday. Thanks to the Chinese government's continuous effort to stimulate domestic spending — efforts that include the crackdown on Daigou and price harmonization — Chinese consumers continue to buy luxury, but only within the mainland. Thus, we saw shopping activities decline at neighboring destinations such as Hong Kong and Macau and fewer tourists traveling to the U.S. to shop for luxury. More concerning, perhaps, is the overall slowdown of Chinese economic growth. Yet Claudia D’Arpizio, the lead author of the study told Jing Daily, “So far, the evidence does not show a slowdown of the luxury market in the country.” Regarding the trade war, D’Arpizio said it’s difficult to determine the effect, even in the short term. It could cause some turbulence in the next few months, but rest assured: Bain predicted that brands will still see solid growth through 2025 when Chinese customers will account for more than 45 percent of the global market (with half of those luxury purchases coming from inside mainland China). The report highlighted Generation Z has become a new luxury force to be reckoned with. Still in their early twenties and younger, Gen Zers rely on their parents as financial safety nets, so they feel free to splurge on luxury goods. The report described Chinese Gen Z shoppers as proud and empowered impulse buyers. They also added that this trend will sustain itself globally, stating “new generations [millennials and Zers] delivering 130 percent of future market growth.” Taking this new wave of global Gen Z shoppers into account, Jing Daily has highlighted four future luxury market trends from the report and analyzed how they could play out in the China market: Sustainability Compared to their global counterparts, the notion of sustainability is still in its infancy for mainstream shoppers in China. Because of this, the primary motivation for Chinese consumers to shop sustainably is for health rather than altruistic reasons like the environment. This is something brands might want to keep in mind when communicating their messages to consumers. Post-ownership The new generation of luxury shoppers in China carries a different ideology of ownership. The sharing economy is no longer viewed as a cheap alternative; it’s now considered the smart way to avoid debt. And additionally, the experience of constantly being able to rotate their wardrobes was described as liberating for them. Above volume and price For the younger generations in China who insist upon new values for their purchases, their measurements are no longer simply prices-related but have more to do with intangible elements like experience, service, packaging, etc. Beyond the physical Online channels are now responsible for a quarter of all global market value, and all luxury purchases are digitally enabled during the sales process, according to the report. Digital channels are often the first and last touch points for consumers in China, so it’s a no brainer for brands to plant their digital channels inside China to capture further Gen Z sales.

Bain & Co: The Next Growth Engine for Luxury? Gen Z

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Published June 14, 2019

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Bain & Co: The Next Growth Engine for Luxury? Gen Z