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Ruder Finn and Consumer Search Group Jointly Announced The 2020 China Luxury Forecast

2020-02-27

 

  • Less optimistic outlook with a distinct increase in the number of consumers planning to spend less during the next 12 months
  • Strong performance in 3rd-and-lower-tier cites that recorded the highest spending over the past year
  • Tmall leads online purchase of luxury goods in Mainland China, while e-commerce through official-brand websites gains momentum
  • Mainland China, Hong Kong and Japan top the list of shopping destinations for luxury goods among Mainland China consumers, with around 31% of consumption occurring locally
  • High degree of acceptance toward paid cooperation between brands and Key Opinion Leaders (KOLs) / celebrities; consumers in 3rd-and-lower-tier value KOLs / celebrities the most

 

February 25, 2020, Shanghai, China – The 2020 China Luxury Forecast was jointly released today by Ruder Finn, a global leading integrated communications consultancy, and Consumer Search Group (CSG), one of Asia’s most prominent leading market research groups. While focusing on a comprehensive analysis of China’s luxury-goods consumers, the forecast dissects consumption, information acquisition and brand awareness behaviors exhibited over the past year to provide essential insight into the trends surrounding the 2020 luxury market in Mainland China and Hong Kong.

The basis for the 2020 China Luxury Forecast is a survey of 2,100 consumers in Mainland China regions and cities — from the largest, 1st-tier cities to 3rd -and-lower-tier cities — as well as in Hong Kong. Altogether, the survey encompassed 1,599 respondents living in Mainland China and 501 respondents in the Hong Kong Special Administrative Region. Among those surveyed, the average annual household income was RMB 1,358,040 in Mainland China and HKD 997,360 in Hong Kong. The survey was conducted in December 2019.

“This past year, as we had predicted in our 2019 report, was marked by optimistic growth. Online purchases and local consumption have become key growth engines for the Chinese luxury market,” said Gao Ming, Senior Vice President and Managing Director, Luxury Practice Greater China, Ruder Finn Group.

“In addition, as the market gravitates toward lower-tier regions after a decade of development, 3rd-and-lower-tier cities have shown strong performance and with great purchasing power. The 2020 China Luxury Forecast hopes to help brands develop better strategies for their China businesses through an analysis of consumption behaviors and information channels across different tiers of cities.”

 

Consumer confidence weakens in both Mainland China and in Hong Kong; Cities ranked third tier and below 3rd-and-lower-tier cities show great potential

 Against the backdrop of China’s economic slowdown, ongoing trade friction and regional challenges, the appetite for luxury items among consumers in these two regions has turned less optimistic. While 44% of Mainland China respondents and 32% of Hong Kong respondents are planning to spend more during the next 12 months – increases similar to those recorded in 2019 – another 10% and 20% of the respondents, respectively, said that they plan to spend less during the same period. This marks a distinct change from the 6% and 12% who said they planned to spend less last year.

Compared with last year, the proportion of consumers planning to spend less during the next 12 months is higher in almost every product category except beauty & cosmetics in Mainland China. More consumers will spend less on automobiles, watches, handbags and electronics. The outbreak of Novel Coronavirus Pneumonia epidemic early in the year dealt an even greater blow to China’s retail business, domestic consumption and consumer confidence, creating additional challenges for the luxury market in 2020.

Over the past 12 months, Mainland China consumers responding to the survey spent on average about RMB 330,400 on luxury items, while Hong Kong consumers surveyed spent around HKD 167,400. It is particularly interesting to note that consumers in the 3rd-and-lower-tier cities spent about RMB 393,900 last year, more than the RMB 344,100 spent among those living in 1st-tier cities and RMB 275,000 in 2nd-tier cities. Lower-tier cities enjoy strong purchasing power, and thus will provide opportunities and future impetus to the development of China’s luxury market.

Luxury clothing and jewelry remained the top categories in terms of luxury goods purchased in 2019 in both Mainland China and Hong Kong. Over the past 12 months, more than 60% of the Hong Kong respondents and 70% of the Mainland China respondents said they purchased luxury clothing and jewelry. Meanwhile, it was noted that Hong Kong consumers are more willing to spend money on a luxury experience than their Mainland China counterparts, a fact reflected in fine dining and travel choices. Some 56% of Hong Kong respondents said they had experienced fine dining compared to 35% in Mainland China. Moreover, 55% of Hong Kong respondents said they had enjoyed luxury travel compared to 48% in Mainland China.

 

Younger consumers, more mature attitudes

The survey shows that young consumers are making their first luxury goods purchases at an earlier age than ever in both Mainland China and Hong Kong. On average, Generation Z consumers between the ages of 21 and 25 generally bought their first luxury item no later than at 20 years old – an age that is two to three years younger than reported by Millennials. In general, Hong Kong consumers have purchased their first luxury goods at a younger age than those living in Mainland China, with 9% of the respondents saying their first luxury item was purchased before the age of 18.

When asked about their reasons for buying luxury goods, consumers in both Hong Kong and Mainland China cited improving the quality of life as the primary reason for their behavior. This marked the first time that this reason was ranked first among Mainland China consumers since the launch of the China Luxury Forecast survey in 2009. Mainland consumers have shifted from favoring show-off attitudes such as flaunting wealth and reflecting taste to seeking more discreet goals revolving around improving personal quality of life, Mainland consumers have become more confident and increasingly sophisticated as their consumer philosophy changes in step with the decade-long development of China’s high-end consumer market.

At the same time, the survey shows that consumers in Mainland China allocated 35% of their fashion spending to Chinese brands over the past year. Some 56% of the respondents said they will spend more on these brands during the next 12 months. In recent years, independent designer labels and premium brands from China have become increasingly visible on the world stage. And an increasing number of extraordinary Chinese designer brands are winning over market share and consumers.

 

Tmall leads online purchases of luxury goods in Mainland China, while e-commerce through official-brand websites gains momentum

Compared with last year, Hong Kong consumers have shown they feel more comfortable about shopping online, with figures showing slight increases across most of product categories. Overall, Mainland China consumers feel more comfortable about shopping online than those in Hong Kong. But they feel less comfortable about buying watches and jewelry online than they were last year.

When choosing online shopping platforms, more than half of the consumers in Hong Kong prefer buying through a brand’s official website. Tmall is the top choice for consumers in Mainland China, with 60% of respondents acknowledging that they buy luxury items on the platform. At the same time, the rate of shopping through the brands’ official websites is quickly increasing, reaching 48%. Ranked third is JD.com. As China’s consumer market continues to upgrade, especially in light of the fact that consumers are becoming increasingly mature shoppers, luxury e-commerce is highly regarded as the industry’s growth engine.

Major e-commerce platforms are expanding their luxury businesses. More than 150 luxury brands have set up flagship stores on Tmall’s Luxury Pavilion platform. In addition to working with leading platforms, a growing number of luxury brands with rare and premium offerings are stepping up their own e-commerce businesses through official websites and WeChat mini-programs.

 

Preference for local shopping; Japan overtakes Hong Kong as preferred travel destination

 This year’s report includes an inaugural, first-time study of local luxury shopping. Results show that Hong Kong consumers spend 44% of their luxury budget locally, while Mainland China consumers spend 31%. Some 64% of Mainland China respondents bought luxury goods locally during the past 12 months. In terms of luxury shopping-destination, the top three for Mainland China consumers are Mainland China, Hong Kong and Japan. Hong Kong consumers prefer shopping in Hong Kong, Japan and Europe.

For outbound trips, Japan is the top choice for leisure travel among consumers in the two regions, and remains number one on the list of preferred travel destinations for both the past and coming 12 months. For the first time, Japan overtook Hong Kong as the preferred travel destination for Mainland China luxury consumers during the past 12 months. Consumers in both regions like to purchase beauty & cosmetics, luxury clothing and luxury accessories in Japan, while Mainland China consumers like to purchase jewelry, watches and handbags in Hong Kong. When planning a travel budget, Mainland China consumers allocate 28% for shopping, whereas Hong Kong consumers set a budget for this activity that is slightly lower, at 23%.

“Localized luxury consumption in Mainland China continues to rise as a result of the proactive initiatives by the Chinese government to promote local consumption. These include reducing import duties and VAT rates, combined with stricter customs inspections, along with the initiatives among luxury brands aimed at narrowing price gaps at home and abroad, and improving sales and after-sales services. Looking ahead, new opportunities for boosting local consumption are expected to emerge in terms of offering products tailored to Chinese culture and aesthetics, as well as more customized member services,” suggests Simon Tye, Executive Director of CSG Hong Kong.

 

Official websites for brands rise to prominence, but traditional advertising still matters

The official websites for luxury brands were accessed by almost half of the survey respondents, representing the top channel through which consumers in both regions can obtain luxury brand information. Among brand-owned social media platforms, official Facebook pages are the top picks among Hong Kong consumers, capturing 62% of the respondents. Most Mainland China consumers prefer official Weibo accounts, which attracted 45% of the respondents, followed by official WeChat accounts, which drew 32%.

Friend-sharing, print-media ads and TV commercials are the key channels influencing purchase decision among Hong Kong consumers, while ads on social media and TV commercials are the key influencers for Mainland China consumers, followed by sharing among friends and print-media ads.

 

Celebrities and KOLs: Most influential in clothing, cosmetics and jewelry; consumers highly receptive to paid collaboration

 Data suggest Mainland China consumers value KOL and celebrity recommendations more than consumers in Hong Kong. Nearly 80% of respondents in Mainland China believe the influence of celebrities and KOLs are becoming more important, especially for people in 3rd-and-lower-tier cities. Luxury clothing and jewelry are the two main categories that are most heavily influenced by KOLs and celebrities among Hong Kong consumers. In Mainland China, the top three are luxury clothing, beauty & cosmetics, and jewelry.

Most consumers note that they will not change purchase intentions even after learning about paid cooperation between brands and celebrities or KOLs. Only 9% of Hong Kong and 4% Mainland China consumers will reduce purchase intentions after learning about paid cooperation between a brand and KOLs. The rate falls to 4% in Hong Kong and to 1% in Mainland China in terms of celebrity cooperation.

 

Wining Brands in 2019

 The report continues to delineate winning brands for various luxury goods categories in 2019 in terms of brand awareness and purchases.

Watches

Rolex, Cartier and Omega are the top three watch brands among Hong Kong consumers. Rolex enjoyed a leading position in terms of consumer purchases last year in Hong Kong. In Mainland China, the top four brands are Rolex, Cartier, Omega and Longines, as they received the highest awareness ratings and were the brands most often purchased by consumers.

 Jewelry

Chanel, Cartier, Tiffany & Co., Gucci and Dior are the five best-known jewelry brands in Hong Kong, while Chanel, Cartier, Dior, Gucci, Tiffany & Co. and Bvlgari are leaders in Mainland China. During the past 12 months, Cartier, Chanel and Tiffany & Co. were the three most purchased jewelry brands among consumers in both Hong Kong and Mainland China. Meanwhile, Mainland China consumers surveyed said they also like to purchase Dior and Bvlgari products.

Clothing

Chanel, Gucci, Louis Vuitton, Hermès and Dior are the top five fashion brands with the highest brand awareness both in Hong Kong and Mainland China. Chanel ranks the number one for consumer purchases in both regions. Meanwhile, Hong Kong consumers also like to purchase Gucci, Burberry, Dior and Louis Vuitton goods. Mainland China consumers purchase Dior, Gucci, Giorgio Armani and Hermès products.

Handbags & Leather Goods

Hermès, Chanel, Louis Vuitton, Gucci and Dior are the top five handbag brands with the highest brand awareness in both Hong Kong and Mainland China. Chanel, Gucci and Dior are the top handbag brands purchased by Hong Kong consumers, while Chanel, Hermès and Louis Vuitton are top brands purchased by Mainland China consumers.

Beauty & Cosmetics

Chanel, Shiseido and SKII are the three best-known beauty & cosmetics brands in Hong Kong, while Chanel, Estée Lauder, Dior Beauty, Lancôme and Shiseido top the list for Mainland China consumers. The most popular brands purchased by Hong Kong consumers were Shiseido, Chanel and SKII, while more Mainland China consumers bought Estée Lauder, Lancôme and Chanel goods.

Wine & Spirits

Hennessy, Louis XIII, Chivas, Martell and Remy Martin are the five best-known brands in the wines and spirits luxury category in Hong Kong, while Remy Martin, Moutai, Wuliang Yi, Louis XIII and Hennessy are the top ranked in Mainland China. High-end red wine and high-end whiskey were the most popular among consumers purchased over the past 12 months. What’s more, Chinese baijiu is still popular in Mainland China.

 

 For more information, please contact:

Ruder Finn Group

Heidi Tang

E-mail: heidi.tang@rfcomms.com

 

For full report of the 2020 China Luxury Forecast, please click the following link:

Download Full Report

 

Update: Ruder Finn and CSG conducted the follow-up survey on luxury consumers in the Chinese Mainland during the COVID-19 pandemic. Please click the link to read more about the impact of the pandemic on the Chinese luxury market.