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THE LUXURY MARKETS

A woman wearing pearls

THREE DOMINANT TRENDS TO IMPACT CHINESE LUXURY,
INCLUDING DUTY FREE , DIGITIZATION AND REPATRIATION

 

China’s luxury product market is on track to become the world’s largest by 2025, moving the United States out of first place, states a new report issued by Bain & Company, authored by two analysts Bruno Lannes and Weiwei Xing. Globally, mainland China’s share of the luxury market grew from about 20 percent in 2020 to approximately 21 percent in 2021.

Despite mounting global social and economic challenges, the country’s luxury goods market finished 2021 with double-digit growth overall, with some brands seeing more than a 70 percent increase in turnover.

Given restricted international travel options because of the COVID crisis, Chinese consumers continued to shop mostly in the mainland, following a 48 percent increase in sales in 2020 with 36percent growth in 2021.

Jewelry spending increases in 2021 were below that of 2020, but still saw growth of about 35 percent, while high-end watch purchases rose about 30 percent.

Average luxury sales in China

DUTY FREE SHIPPING IN HAINAN

The report identified three dominant trends, which it said are likely to impact significantly on the Chinese luxury market over the coming years.

The first is the growing influence of offshore duty-free shopping in, with sales there growing by more than 120 percent in 2020. In 2021, these sales increased about 85 percent, reaching RMB 60 billion and contributing about 5 percent to China’s overall luxury goods market growth. Personal luxury makes up close to 95 percent of Hainan sales.

One of the key factors in the success of the Hainan initiative, the report stated, is aggressive pricing strategies, and not only tax benefits. Bain conducted store checks during the Christmas season, and showed that Hainan unit prices can be 30 percent to 55 percent lower than brands’ official listed prices.

 

In 2021, four additional duty-free operators joined China Duty Free Group which was the only operator in Hainan. Bain expect retail shopping opportunities on the island to continue expanding.

REPATRIATION OF SALES FROM ABROAD

A second trend is the increasing digitization of the already technologically-adept Chinese economy, which was a process that accelerated over the past two years because of the COVID lockdowns. The jewelry saw the highest online growth, Bain stated, with penetration approaching 10. percent.

Luxury online penetration reached about 19 percent of the total in 2021, excluding duty-free shopping. With duty-free penetration included, total luxury online penetration in China reached approximately 26 percent of sales, the report noted. Personal luxury duty-free sales online penetration was about half of all sales, similar to 2020, and they represent the “ship to home” opportunities that most travel retail operators typically offer to consumers in China.

 

Luxury sales growth graph in China

The third key trend was the continued repatriation of sales from abroad to China. Mainland China’s growing share of spending on personal luxury goods reduced overseas purchases by about 30 billion euros in 2021, compared to 2019.

Overall, Bain stated, it expects Chinese consumers’ personal luxury purchases to recover to pre-COVID levels between the end of 2022 and the first half of 2023. This will be by continued repatriation of spending abroad, and boosted by the gradual reopening of international travel, first in Asia and then globally.

But in the short term, Bain said that it expected that 2022 will produce low double-digit growth for personal luxury overall, and growth is likely to be slow during the first half of the year.

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