China’s luxury pivot to value, experiences

What happened Luxury spending in China is forecast to hit 572 billion RMB ($80.6 billion) this year, according to the new China Luxury Market Insights Report from Boston Consulting Group (BCG) and Tencent Marketing Insights (TMI). The first half of 2024 saw 40% of Chinese luxury spending occuring overseas, driven by outbound travel and tax-free shopping, leading to a double-digit YoY decline in domestic sales. Moderate spenders, those allocating 50,000 RMB ($7,050) to 300,000 RMB ($42,300) to high-end purchases, cut spending by 17%, reflecting broader economic pressures. Meanwhile, high-spending consumers with yearly luxury budgets exceeding 300,000 RMB ($42,300), boosted per capita spend by 12%, positioning themselves as key drivers of market growth. The Jing Take China’s luxury market is experiencing pronounced polarization in 2024. The top 10% of spenders now drive 45% of total sales, up five percentage points from last year, while moderate and light spenders have reined in purchases by 17% and 1%, respectively. Notably, moderate consumers are narrowing their spending to fewer categories, indicating a pivot towards more considered, rational spending. While VIP consumers demonstrate resilience, luxury brands should remain cautious. A recent Barclays report on China highlights that while top spenders are sustaining their purchases, they’re not entirely immune to economic pressures, with some feeling the pinch. Chinese luxury buyers have traditionally prioritized tangible goods over services, but a shift is underway. Moderate and high-end consumers are increasingly investing in experiences and services that represent a “high-quality lifestyle.” Consumers’ rationale for luxury spending has evolved. In 2023, it was largely driven by social factors, but this year, the focus has pivoted to long-term value and versatility. Leather goods (+7%) and jewelry (+6%) have emerged as the fastest-growing categories, propelled by increased spending from high-end consumers. Apparel has also seen a boost, while footwear is up 3%. However, some traditional luxury segments are declining: accessories fell by 13%, and watches by 3%. Despite the overall drop, consumers under 30 continue to show entry-level demand for watches. Amid economic pressures, consumers are realigning their luxury spending. Around 45% are turning to high-end physical goods, with 23% opting for premium ready-to-wear or designer brands, and 27% prioritizing experiential luxury such as travel and dining. Some 28% are investing in functional products, such as sneakers and electronics. The importance of digital influences on luxury consumption is also growing. A striking 80% of consumers now finalize purchase decisions before traveling abroad, with online platforms playing a pivotal role. Data reveals 86% of shoppers leverage brand websites or social media to research luxury products. Brand storytelling and content featuring KOLs and celebrities continue to rise in importance, now second only to traditional brand advertising. The rise of online luxury shopping has fostered increasingly discerning consumers. Brand authenticity and product quality aren’t paramount anymore, with many shoppers now seeking better prices, exclusive invites, and tailored benefits. Brands looking to thrive in this evolving landscape should adapt their strategies to the sophisticated demands of the “high-quality lifestyle,” blending personalization and value that resonates with modern consumers. The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.

China’s luxury pivot to value, experiences

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Published September 16, 2024

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China’s luxury pivot to value, experiences