Will luxury brands and houses in China experience a return to growth in 2023? A report by Bain & Company titled “Setting a New Pace for Personal Luxury Growth in China” suggests that this may be the case. The study reveals that the luxury market in China saw a contraction of -10% in 2022, marking the end of five years of continuous growth. The decline can be attributed to various economic factors related to the Covid-19 crisis, including the closure of physical stores, a decrease in tourism, rising unemployment, and the fragility of the real estate market.
While the entire luxury sector has been affected, the watchmaking segment has experienced the sharpest decline, with sales down -20 to -25%. Fashion and lifestyle brands have also faced a decline of -15 to -20%. However, the beauty sector, with its high online penetration rate, managed to limit its decline to just -6%. According to Bruno Lannes, Senior Partner at Bain & Company, some brands managed to remain stable or even increase their sales in 2022. This can be attributed to three factors: larger brands outperforming smaller players, brands with iconic portfolios performing better than those relying on trendy or seasonal products, and brands with a higher concentration of Very Important Clients (VICs) experiencing better performance.
The report highlights the importance of expanding the VIC customer base as a crucial lever of resilience for luxury brands. The slowdown in consumption has had a greater impact on entry-level luxury consumers, while VICs have played a significant role in online luxury product sales. In fact, VICs who made multiple purchases on Tmall Luxury Pavilion, Alibaba’s luxury platform, accounted for over 50% of the platform’s sales and constituted the fastest-growing customer segment.
To facilitate the recovery of the luxury market in China, the development of the duty-free ecosystem and the implementation of new pricing strategies aimed at harmonizing price gaps between China and the rest of the world are crucial. Bain & Company experts emphasize that the fundamentals of consumption in China remain intact. They estimate that the country could return to 2021 sales levels as early as this year, highlighting the fact that China is a giant in luxury growth compared to other emerging markets. With the largest number of middle and high-income consumers, the population of these consumers is expected to double by 2030.
Useful Links:
1. Bain & Company Report: Recovering Growth for Luxury Brands and Houses in China
2. Alizila Article: China’s Growing Base of High-End Consumers
