China’s luxury market shrinks in 2014 as luxury brands adapt to shifting consumer preferences


New research from Bain & Company finds changing market dynamics create new windows of opportunity for luxury labels that focus on design, fashion and exclusivity

Shanghai – January 20, 2015 – As the global luxury market adjusts to a ‘new normal’ of lower, but more sustainable growth over the long-term, mainland China trails slowly behind, showing for the first time, a negative trend in 2014:  negative one percent growth at approximately 115 billion RMB.  According to Bain & Company’s 2014 China Luxury Market Study, released at a press conference today, the region’s luxury market is undergoing a fundamental shift, brought on by evolving customer dynamics, an influx of new, emerging luxury labels, and an economic slow-down.  As a result, luxury brands in China must step up their game in 2015 by adapting to new market conditions and customer expectations. 

Customer segments are no longer clear-cut, with common behaviors observed across demographic groups; instead, there is an increased diversity of preferred brands, and exclusivity, quality and value for money without logos are becoming increasingly important: Bain’s survey of 1,400 Chinese consumers found that they are increasingly likely to switch between luxury brands.  Seventy percent of respondents said they like to try different brands and styles, which has led to greater brand diversification and established greater parity between aspirational brands and established ones in terms of demand and desirability.  The survey revealed that nearly 45 percent of respondents plan to buy more emerging luxury brands in the next three years.

“The field of luxury brands in China is breaking wide open,” said Bruno Lannes, a Bain partner and author of the 2014 luxury study.  “This creates a new window of opportunity for emerging brands.  At the same time, it is imperative that more established brands don’t grow complacent as China’s luxury market continues to evolve, or they risk falling out of favor with consumers.”

Luxury brands are no longer competing with only each other for a greater share of shopper spend; they are also contending with consumers’ increasing interest in luxury travel and experiences, such as spas and cruises.  In Bain’s survey, 55 percent of consumers said they have spent on a luxury hotel or resort, and 80 percent said they would increase their leisure travel, as opposed to shopping tours in the coming year.  

In this environment, exclusivity and fashion have been the “winners” of the year – limited editions, fashion-focused portfolio and designer collaborations drove growth despite market headwinds.

“Brands’ future positioning and popularity within the luxury market hinges on their willingness to revamp concepts to serve the needs of the increasingly sophisticated and well informed Chinese consumers, while managing the growing diversity of sales channels, such as daigou.” said Lannes.

According to Bain, daigou, or overseas personal shoppers who buy and send luxury goods to customers in China, has grown to an estimated market value of RMB 55-75 billion in 2014, concentrated in cosmetics, followed by leather goods, watches and jewelry. This is nearly 50% of the store sales in China.

70% of luxury brands bought by Chinese is now bought abroad or through daigou agencies; in terms of travel destinations, Korea and Japan have been the big winners in 2014.

Looking ahead, Lannes predicts similar trends for the Chinese luxury market in 2015, including younger, more sophisticated and knowledgeable shoppers who will seek to re-define luxury and more consumers pursuing the full spectrum of experiential luxury.  He recommends that luxury brands take several actions to maintain a competitive edge:

  • Enhance exclusivity and VIP experience by ramping up VIP programs, customizing store format and product category/collections to maintain exclusivity, and focusing on targeting the right location and the right pool of consumers, rather than just aggressive store growth
  • Rethink the approach to the more sophisticated and educated Chinese consumers through more fashion, design and exclusivity, and develop a regional strategy to better serve customers and provide a ‘cross-border’ experience
  • Roll out omnichannel touchpoints that include channel extension to e-commerce platforms and digital campaigns on social media platforms, such as WeChat and Weibo

“In this age of brand redefinition, luxury brands in China must shed traditional concepts and channels and follow where their customers lead, or risk losing them,” said Lannes.  “This may be a challenge for many, but those that understand how to change with the consumer will reap the rewards.”

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About the Bain ‘Luxury Goods Worldwide Market Study’ and the China Edition

Bain & Company, in cooperation with Altagamma – the flagship trade association for the Italian luxury goods industry – has analyzed the market and financial performance of more than 230 of the world’s leading luxury goods companies and brands. The database of companies, known as the ‘Luxury Goods Worldwide Market Observatory,’ has become a leading and much studied source for the international luxury goods industry. Bain publishes its annual findings in its ‘Luxury Goods Worldwide Market Study,’ which was first published in 2000. In addition, Bain publishes a December “China edition,” with update figures for the Chinese market and with survey data from direct consumer research. In 2013, Bain surveyed 1,400 Chinese consumers who had at least some to three years of luxury purchasing history. The sample covered a wide range of locations, including Beijing, Shanghai, Shenzhen, Shenyang, Chengdu, Tianjin, Wuhan, Hangzhou, Wenzhou, Wuxi, and Dongguan. It also represented a full spectrum of luxury shopper segments, from core customers to middle-class aspirational buyers, across all age ranges and both genders.

About Bain & Company, Inc.

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