Luxury sales in China up 48% in 2020, market to become the world’s largest
January 19, 2021 Category Macro-economy, Weekly
Bucking the global downward trend amid the fallout from the Covid-19 pandemic, China’s luxury sales last year rose by 48% to around CNY350 billion, buoyed by a consumption comeback as travelers were unable to shop overseas, a boost in online sales, and duty-free policies in Hainan province, observers and industry reports said. Riding on a wave of heightened consumption, the country’s luxury market is on course to become the world’s largest within the next few years, analysts said. A long list of luxury brands announced price hikes at the beginning of 2021, particularly for handbags. Starting from January 8, Gucci has raised the price of handbags by up to 20%. Louis Vuitton raised prices by 5% to 9% in May, while Chanel also increased prices of some handbags and small leather goods globally in May, followed by Prada in July. While price hikes could be an effective measure to recover losses, it is clear that more luxury brands are placing their bets on China, where demand is high and luxury consumption is still growing. China’s share of the world luxury goods market nearly doubled last year, growing from about 11% in 2019 to 20% in 2020, while the global luxury market declined at an expected rate of 23% in 2020.
Over the New Year’s holiday, duty free stores across Hainan were crowded with wealthy Chinese buyers. A sales manager at the Sanya duty free store told the Global Times that some hot luxury items, such as Lancôme eye cream, Burberry scarves, and Fendi boots have sold out due to rising demand, and it is not clear when new stock will come in.
“Traffic at duty-free stores has bounced back from the second half of 2020,” the Sales Manager named Sun said, noting that overseas travel restrictions and attractive shopping policies in Hainan have fueled the business boom. In 2020, duty-free sales in Hainan exceeded CNY32 billion and a further rise is expected this year, Wang Lei, a Hainan government official, said. Starting from July 1, Hainan increased the duty-free quota per person to CNY100,000 from CNY30,000. Further favorable policies will be launched this year, including a duty-free delivery service, according to Hainan officials.
“The pandemic shows no sign of abating in other countries, so it is impossible to travel in the short term to international markets where luxury products can be cheaper. Spending in the domestic market is the only way I can release my pent-up demand,” a Beijing-based white-collar worker surnamed Li told the Global Times. Li had a vacation in Hainan in December and spent more than CNY30,000 on luxury purchases. Li said she is also worried about cross-border e-commerce shopping, as there is the risk of coronavirus on the outer packaging of goods sent to China.
Chinese consumers’ demand for luxury goods was also on display during Beijing SKP shopping mall’s annual shopping festival. “We expect the ‘comeback’ to last until the end of this year,” an SKP salesperson told the Global Times. As such, she has tried to develop more long-term customers, acquiring the contact numbers of some regular luxury consumers who used to buy goods in Milan or Paris. “Once new items arrive, I will inform them,” she noted.
The robust demand in China is a source of hope for global luxury brands that have seen sales tumble amid the Covid-19 pandemic. Mainstream luxury brands are now doubling down in the Chinese market and are embracing e-commerce, an area they used to shun due to concerns that moving online could erode their high-end brand image.
According to a Bain & Co report, China’s annual luxury online penetration increased from about 13% in 2019 to 23% in 2020. So far, luxury brands including Prada, MiuMiu, Bvlgari, Louis Vuitton, Hermès and Gucci have opened stores on Tmall, Alibaba Group’s B2C online marketplace. From January to November, the online luxury sales of Tmall International soared 72% year-on-year, the Global Times reports.
Some brands have also scaled up their presence on China’s social media platforms such as short video website Douyin, the Chinese version of TikTok, as well as shopping platforms Xiaohongshu and Bilibili to cater to young Chinese consumers who are becoming a major force in luxury consumption. Wang Xinmiao, a Beijing-based industry observer, predicted that China’s luxury market will grow by more than 40% in 2021. “More luxury brands will choose China as the first market to launch new products,” Wang told the Global Times.
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