2011 China Luxury Market Study

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According to findings from a new Bain study, sales of luxury goods in mainland China will grow overall by 25 to 30 percent in 2011, with more than 60 percent of purchases coming from new luxury customers. Strong sales in the first three quarters of this year in China are driving Bain’s luxury goods 2011 estimate, with a gradual softening seen for the fourth quarter, according to the study. Watches are the growth leader in the market, with a growth forecast of 40 percent for 2011, while shoes, cosmetics and fragrances will see growth rates near 20 percent. Growth rates in China continue to outperform globally; Bain finds that 2011 sales will be up by eight percent in the Americas, two percent in Japan, and seven percent in Europe.

While the majority of sales growth in 2011 is coming from new luxury shoppers, the share of growth from existing customers will improve to reach approximately 40%, according to the shopping intentions of the 2,000 Chinese luxury shoppers surveyed across Tier One to Tier Three cities in China including Beijing, Shanghai, Chengdu, Shenzhen, and Hangzhou. The study finds that China’s domestic market growth is still driven by new store openings. Bain saw a continued expansion into Tier Two and Tier Three cities, although the pace of store openings in China has cooled down in 2011. For a select group of luxury brands, the new store openings declined from 150 in 2009 and 160 in 2010 to an estimated 90 store openings in 2011.

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"In less than five years, the Chinese consumer has transformed from a niche emerging market to a core target for global luxury brands," said Bruno Lannes, head of Bain’s Consumer Products and Retail Practice in Greater China and lead author of the study. "We continue to see a phenomenal luxury goods growth story in China but are seeing some signs of market maturation."

Luxury goods purchases in China and by Chinese consumers reached a total of 212 B RMB in 2010. Luxury purchases grew by 27 percent in Mainland China in 2010 and by 45 percent in Hong Kong and Macau, while Chinese luxury purchases abroad grew by 38 percent. When including Hong Kong and Macau spending, Greater China becomes the world’s third largest luxury market, bypassing Italy and amounting to nearly 40% of the US luxury market. The strong growth of overseas spend is largely driven by RMB appreciation and increased oversea travels. The Bain study also shows key differences in Chinese consumer rationale for domestic versus overseas purchase. Increasingly, Chinese consumers are traveling internationally and shopping as part of their trips. More than half of domestic purchases occur because consumers do not want to postpone purchasing or because they want access to after-sale services. More than half of purchases made by Chinese abroad are motivated by lower price or better product selection.

According to Bain’s Chinese luxury shopper survey, Louis Vuitton, Chanel, Gucci, Dior and Armani rank as consumers' top five brands in 2011, unchanged from 2010. Top brand status remains critical for domestic sales as the top five brands in each category account for approximately 50 percent of that category’s sales.

The study findings also show that the brand landscape in China is becoming more dynamic and active. Heritage-focused brand building efforts are poised for growth. Overall, leading brands are emphasizing on improving the customer experience and accelerating online platforms as a channel for brand marketing and e-commerce. Approximately three-quarters of Chinese luxury shoppers surveyed said that they engage with brands online, either through the use of social media to research purchases (80 percent agreed) and through the use of news portals (70 percent agreed). In addition, a few luxury brands inspired by Chinese culture have also emerged, although still at very early stage of development

"The brand landscape in China and among Chinese shoppers is becoming more dynamic and active," concluded Bain’s Lannes, "while the overall business environment for luxury brands remains positive."

For a detailed recap of the study’s key findings, download the PDF.