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The pandemic hasn’t slowed consumer spending on luxury goods — at least not in China.
Three in 10 Chinese consumers spent more than usual on high-end retail between January and July, a poll by UBS Evidence Lab found. This is despite global luxury sales in the first half of 2020 being down around 30%, according to Daniel Zipser, senior partner at McKinsey & Company.
Prada, Dior, and Gucci all reported rising sales in China in 2020, while revenues in other markets often stagnated or even dropped.
Chinese consumers are spending a bigger proportion of their money on luxury retail as spending on tourism dropped during lockdown, UBS reported.
But with international travel restrictions still in place, Chinese shoppers are buying these products closer to home. This means the domestic market in Mainland China is “probably growing stronger than ever before,” Zipser said, adding that sales are going “through the roof.”
Meanwhile, luxury goods shops in Europe are losing out — and analysts say the future of the market on that continent could be shaped by house Chinese buyers act in the coming months and years.
Prior to the pandemic, Chinese consumers made around three-quarters of their luxury goods purchases abroad, Bain & Company reported. The UBS survey found that, because of the travel restrictions, more than three in four Chinese consumers plan to buy luxury goods within Mainland China over the next year — a significant increase from 62% at the same time last year.
During China’s Golden Week from October 1 to 8, when citizens take holiday from work to visit relatives or travel round the country, retail sales rocketed. Duty-free sales on its island province Hainan more than doubled during the week from last year’s holiday, and across the country sales were up nearly 5% as shoppers splashed out on luxury products.
The Chinese government had been pushing this Chinese luxury spend repatriation for a long time by changing duty-free regulations, cutting important tariffs in 2018, and moving GDP towards consumption, Luca Solca, senior research analyst at Bernstein, told Business Insider.
Even before the pandemic happened, Chinese domestic retail spending was expected to grow. Bain & Company estimated that Chinese consumers would make around half of their luxury purchases in the country by 2025.
The pandemic is accelerating this trend.
Luxury sales in Europe are down, but its brands are flourishing in China
But the growth of luxury retail in China comes at a cost to sectors abroad.
Chinese consumers are the world’s biggest luxury goods buyers. Last year they made a third of all luxury purchases, and accounted for 90% of the industry’s total market growth.
Most of this was spent abroad. In 2019, Chinese tourists spent around 70 billion euros ($83 billion) on luxury goods overseas, Solca said, and this is expected to grow as China’s upper-middle-class expands.
But the pandemic has changed the rate of China luxury spending overseas. Only 9% of respondents to the UBS survey said they planned to buy luxury goods in the US over the next year — …read more
Source:: Business Insider