According to a study conducted by US financial services group Jefferies, China’s dominance in the luxury market is expected to continue in the short term, accounting for over 60% of global luxury expenditure. This shift can largely be attributed to China’s swift recovery from the initial wave of Covid-19 and its ability to avoid a second wave, unlike other regions. As a result, Chinese consumers have been redirecting their spending domestically instead of abroad, leading to a surge in luxury purchases within the country. Jefferies predicts that while China’s share may slightly decrease in the next five years, it is still expected to remain around 55-60% of the global luxury market.

These findings align with another report published by consulting firm Bain & Co., which projects that Chinese domestic luxury consumption will make up 26-28% of the global market by 2025. The study highlights China’s impressive growth in luxury expenditure, with local consumption rising by 45% this year, reaching €44 billion. This growth has been observed across all sales channels, product categories, price segments, and consumer age groups. In fact, the annual growth rate of luxury purchases in China in 2020 was 46-47%, compared to 18% in 2010 and 37% in 2019. Furthermore, Chinese consumers, both within China and abroad, accounted for 33% of global luxury spending in 2019, and this is projected to increase to 46-48% by 2025. Bain & Co. also anticipates a 20% growth in luxury expenditure by Chinese consumers in 2021, primarily driven by a partial return to foreign travel and increased purchasing behavior by women and new consumers entering the luxury market.

Looking ahead, Jefferies expects the share of luxury purchases by Chinese tourists to rise to approximately 40% in five years, after reaching a 13% share in 2020. Historical data further emphasizes the importance of China in the luxury market, as Chinese consumers spent nearly €1 billion on luxury goods in 1995, which increased to €6.5 billion in 2005, and a staggering €78 billion in 2015. Jefferies predicts that Chinese consumers will continue to significantly contribute to the luxury market, expecting them to spend an astounding €165 billion on luxury products in 2025.

Both Jefferies and Bain & Co. agree that the future growth of the luxury market will primarily be driven by China and other Asian consumers, who are projected to account for 70% of luxury expenditure worldwide by 2025. This underscores the importance for luxury brands to prioritize appealing to Chinese consumers and establish a strong presence in the Chinese market, particularly through digital channels. Brands that fail to do so may encounter difficulties in growing their business in the future.

Recognizing the significance of the Chinese market, luxury brands are already taking strategic steps to target Chinese consumers. For instance, Louis Vuitton recently chose to launch its new “See LV” exhibition in the Chinese city of Wuhan. By bringing this immersive exhibition to the city where the Covid-19 pandemic originated, the brand aims to deepen its connection with Chinese consumers and tap into the immense potential of the Chinese luxury market.

Useful links:
Jefferies
Bain & Co.