Ruder Finn and IPSOS just teamed up to release the annual China Luxury Forecast report for 2014, which surveyed 1,800 luxury consumers across China with an annual income of RMB290,000 (about US$48,000) or HK$970,000 (about US$116,000) or more.
Likely a result of the inclusion of individuals making upper middle-class incomes instead of simply high-net-worth individuals (HNWIs), the survey showed that more affordable categories like apparel and beauty are expected to see continued robust sales growth in the year to come. Meanwhile, shoes and wine will still be feeling the effects of the luxury slowdown, but categories that were hurting last year appear to be tapering off. See the full list of items below:
Beauty remains the top category for future luxury spending in China in the coming year with 50 percent of respondents saying they plan to spend more on it, a number up from 43 percent in last year’s survey.
With the rise of China’s middle class, beauty has a particularly bright outlook as a result of the fact that it can serve as “affordable luxury”, with significantly lower costs than items such as bags and shoes. Luxury brands have taken notice: LVMH said that its beauty brands such as BeneFit and Sephora saw much higher China growth than other categories in its third-quarter revenue report, and its subsidiary L Capital Asia purchased Chinese beauty company Marubi this year.
L’Oreal and Estée Lauder have also been investing in Chinese-branded beauty to make the most out of the market: in August, L’Oreal made an $843 million takeover of Chinese skincare company Magic Holdings, while in 2012, Estée Lauder created skincare brand Osiao.
Clothing was the only other survey category which respondents said they plan to buy more of this year—but the number who answered that they would is much larger than last year. Fifty-two percent of said they will spend more on apparel n the upcoming 12 months, as opposed to 38 percent who said the same thing last year. The importance of apparel is clear in the fact that many niche clothing brands have experienced faster growth in the past year than more handbag-focused mega-brands like Louis Vuitton and Gucci, and 2013 China openings by department stores Lane Crawford, 10 Corso Como, and Galeries Lafayette show faith in the future of the luxury apparel market—especially niche brands.
The explosive growth of fine wine sales may be stabilizing in 2014. Although 40 percent of respondents said last year that they planned to spend more on fine wine in 2013, 46 percent said this year that their spending will remain the same. This steadying reflects a slowdown in spirits growth that major drinks conglomerates like Pernod Ricard have been experiencing, likely as a result of China’s crackdown on fancy official banquets and gifting. Global wine aficionados may be happy to hear this news, however, since there has been much talk in the media about a potential global wine shortage thanks to China’s unquenchable thirst.
Like wine, shoe sales were expected to grow last year, but will likely even out in 2014. In 2012, 43 percent predicted that they would be spending more on footwear, but 48 percent stated this year that their spending won’t increase.
Although spending on bags was headed into decline last year, with 48 percent of respondents planning to spend less than the year before, 50 percent said they plan to spend the same amount this year.
Luxury companies have been working hard to bring back growth after Chinese consumers’ decline in interest in logo-heavy handbags. As a result, both Louis Vuitton and Gucci have been introducing more non-logo bags into their collections, as well as more heavily promoting their apparel.
Watches & Jewelry
Although 54 percent of respondents said they would spend less on watches last year, and 48 said the same for jewelry, these two categories are expected to see a stabilization in the year to come. Swiss watch exports to China have been in decline all year, but that downward trend may come to a stop, as 46 percent of respondents said they would spend the same this year as last. Jewelry also saw a large turnaround, with 48 percent of respondents saying they’ll spend the same this year.
The good news in these findings is that for high-end categories like luxury watches and bags, the effects of China’s luxury slowdown seem to be gradually reversing. Beauty and apparel, the main bright spots, are likely to see continued steady growth in the years to come as upper-middle class incomes rise and demand remains strong for these products as people buy them for themselves and as gifts for family and friends regardless of the ongoing crackdown on official luxury gifting.