Demographic Trends Shaping Luxury in China

    In a highly segmented market like China, luxury brands particularly need to understand the value of every consumer category.
    In a highly segmented market like China, luxury brands particularly need to understand the value of every consumer category. Photo: Shutterstock
    Adina-Laura AchimAuthor
      Published   in Macro

    In the age of digital transformation when brands rely on analytics to predict consumer behavior, it’s easy to underplay the importance of demographics. Indeed, demographics have conventionalized stereotypes (men love soccer and beer; women obsess over luxury garments) and consumers are more sophisticated than simply an age or income bracket, but that doesn’t imply that marketers should completely ignore statistical analysis. This is especially true in the luxury world, where knowing and understanding every demographic division is the starting point of the conversation. Undeniably Gen Zers and millennials have similar traits and consumer patterns, but that doesn’t imply that they are identical. Market segmentation is a double-edged sword. In the hands of lazy marketers, it can promote stereotyping and overgeneralization, while for the rest, it’s a welcomed tool.

    In a highly segmented market like China, luxury brands particularly need to understand the value of every consumer category if they want to bridge the generational gap and appeal to a wider net of possible consumers. As luxury has a different meaning for new generations, adapting to the aspirations, experiences, and demands of every age division becomes an advantage. Successful heritage brands will continue to insert demographic reports in analytics, transforming them into a key component of their marketing strategy. All things considered, here are the demographic trends currently shaping luxury in China:

    1. The elimination of the one-child policy#

    China has an aging problem, and this is a hazard to the country’s economic breakthrough. While today, we link China’s rebound to trade and economic liberalization, the importance of the labor supply can’t be neglected. However, recent studies show that China is losing its demographic advantage because of censorious population-control efforts and the draconian one-child policy introduced in 1979 by Deng Xiaoping.

    Under these prohibitive family-planning rules, the authorities restricted the vast majority of families to a single child. This policy brought a sharp drop in the fertility level and total birthrate, creating a gender imbalance. Furthermore, the son preference forced many families to abort girls, creating a society where men vastly outnumber women. This again gave birth to a generation of shengnan, meaning “leftover men” or partners considered unsuitable for marriage. On the other hand, the policy expedited the gender equality movement. Female college enrollment exploded, while educated women pursued in-demand careers, leaving traditional roles behind.

    The reversing of the policy is unlikely to stop either the women’s liberation movement or the country’s gender imbalance, and yet it will impact the luxury sector. Niche markets such as luxury kidswear, baby care products, maternity wear, and child-related products (e.g., toys, nursery furniture) will see strong sales. On the other hand, young families will embrace family-oriented collectivism, progressing from the self-centered and individualistic life view. Instead of luxury products that bring personal gratification (think of a Birkin bag or a Rolex Daytona), consumers will give precedence to family activities and child-related elite services such as after-school enrichment programs or upper-class sports. Basically, luxury players who offer customized family-friendly trips, educational leadership training trips for families, and after-school private tutoring will see robust growth and higher sales.

    2. The world’s largest middle-class#

    China’s middle class is forecasted to reach 780 million in the mid-2020s and with all the hype in the media, there’s a risk of falling in the oversimplification trap. In other words, it’s wrong to see a multifaceted issue like the Chinese middle-class as a homogeneous group.

    China is one of the places where marketers have registered significant differences between the urban and suburban middle class, and the upper and lower-middle classes. In addition, geography is playing an important role as the urban population from the eastern and coastal provinces is wealthier than inland city slickers. Further segmentation appears between individuals working in the private sector and the power-driven bureaucrats. Surprisingly, the luxury consumption patterns of these classes differ. White-collar workers in the public sector are fearful of corruption scandals and repercussions, so they won’t flaunt their wealth ostentatiously. Given this, luxury brands have to understand that the “one-size-fits-all approach” doesn’t work with the Chinese middle-class. Evidently, discounted prices are appealing to middle-income households but then again not everyone will shop at outlet malls.

    3. Millennials and Gen Zers are both large but not interchangeable generations#

    Some luxury brands believe that younger consumers have a similar response to advertising campaigns and yet each generation has its own idiosyncrasies.

    Charlie Gu, CEO Kollective Influence told Jing Daily that “Chinese Gen. Z grew up witnessing China’s rapid rise on the global stage. As a result, they possess a national pride that has been seen also among the millennials.” Indeed, national pride is a common denominator of the younger generational cohorts but that doesn’t imply that all members share the same viewpoints and positions. As Gu points out Gen. Z is a paradox, being both an “early adopter of Western luxury trends” but also a devotee of Chinese home-grown brands. Conversely, millennials are only now warming up to national brands, seeing international players as a dominant force in the luxury world.

    Charlie Gu identifies influencer marketing as an additional breaking point between the two-generational cohorts. He believes that “top-tier influencers with large followings don’t have such a strong appeal to Gen. Z. Unlike their parents (mostly millennials) who considers top influencers and key opinion leaders as a trusted authority, Chinese Gen Zers identify with people who are more like their peers. They are less interested in following mass trends and are more about living a bona fide lifestyle within their social tribe,” says Gu.

    4. Multigenerational households create capricious buying patterns#

    According to the Pew Research Center, 20 percent of the U.S. population lived in multi-gen households in 2016, but the U.S. is not the only country where multigenerational homes are on the rise. High housing prices, low wages, and negative economic conditions have created a demographic shift, changing the structure of the modern family.

    In China’s coastal cities, properties are notoriously expensive and the cost of living is high. In addition, there’s the traditional Confucian value of Filial Piety (孝, xiào) under which children are obliged to become caregivers to their aging parents. As grandparents become household heads, the younger members of the family grow into spoiled children. There is extensive literature on the development of relationships inside the multi-gen home and the effects that this living arrangement has on child development. The “little emperors” become decision-makers, taking the lead in luxury purchasing decisions. On the other hand, parents are exposed to the views of grandparents (millennials influenced by baby boomers) being persuaded to embrace new consumer behaviors. In conclusion, the perceived value of luxury could change.

    5. Women empowerment#

    Luxury brands should forget ernai (concubine) and tai tai (wealthy wife) and focus on career women in China. According to the Robb Report, “there are more than 140 self-made women billionaires in China today, which is more than three-quarters of all the self-made women billionaires worldwide.” Moreover, women have more opportunities for career advancement in China than in many Western nations, and Swiss private bank Julius Baer estimates that in 2017 at least 31 percent of top senior management positions in the region were held by women.

    As stated above, one consequence of the one-child policy is the gender imbalance which offered women an edge. Education was no longer an exclusive male right, and girls were sent to school and were pushed to pursue highly-skilled jobs. In contemporary China, women were allowed to take full advantage of the resources reserved for boys. But entering the workforce meant postponing marriage and childbearing.

    The emancipation of women didn’t only change the consumer’s lifestyle, but it also impacted luxury consumption. A good example is Porsche. The luxury carmaker is a company associated with high-net-worth men, but in 2015, almost 40 percent of Porsche China sales came from women.

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