Small Chinese cities are the future of global luxury goods consumption
October 9, 2018 Category Retail, Weekly
New apartment buildings in Hohhot, capital of Inner Mongolia
In China, luxury goods are no longer exclusively for well heeled city folk. In fact, the future of brands like Louis Vuitton, Chanel, Gucci and Prada may lie in smaller cities like Hohhot, with a population of three million and 10 hours by rail to the capital Beijing. More than half of all luxury consumers in China live outside the top 15 cities, in so called second and third tier cities and other less developed ones, according to a report by Boston Consulting Group (BCG) and Tencent. Luxury goods, more often associated with sophisticated city dwellers, have become commodities to be bought by members of the rising middle class in smaller cities.
Such a market fragmentation was made possible after brands digitized the marketing and purchasing process, and as Chinese consumers increasingly obtained information about luxury goods online, especially via smartphones. Mobile apps and content offer luxury buyers insights of key opinion leaders (KOLs) and the brands themselves.
However, 58% of consumers still prefer the old-fashioned way of buying in bricks-and-mortar stores after doing the research online, and around half choose to make their purchases while traveling overseas. “The battle for luxury consumers will shift swiftly from offline to online, and in five years, we will enter the age of Luxury Digitization 2.0 where online and offline marketing and sales will knit together closely,” BCG Partner Wang Jiaqian said. In tier-three and lower-tier cities that do not have physical luxury stores, buyers are twice as likely to make purchases online as those in the top 15 cities, but nearly 80% of them said they would not mind making the trip to a physical store to shop.
Chinese consumers have been the key target for global luxury brands for their deep pockets and the sheer size of the country’s market. China’s personal luxury goods market, worth €105 billion in 2017, is expanding at 6% annually, and is expected to reach €162 billion in 2024, according to the report. By then, 70% of all new growth in the world’s luxury market will be driven by China, which will account for 40% of the global market. Chinese luxury goods buyers are mostly young and well educated – and 70% are female. The average age among both genders is 28 years, and two out of three are aged 18 to 30 with a bachelor’s degree or above, the South China Morning Post reports. Chinese e-commerce platforms account for half of the country’s online luxury purchases, driven by the launch of Luxury Pavilion by Alibaba Group Holding’s Tmall and Top Life by JD.com.
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