SHANGHAI – January 24, 2024 – Following an overall rebound last year, China’s luxury market is expected to grow at mid-single-digit in 2024, according to Bain & Company’s latest China Luxury Report.

China's luxury market saw a 12% year-on-year increase in 2023, recovering from the previous year’s decline due to the pandemic. 2023 started off with a robust rebound in H1 due to the low base in the second quarter of 2022. However, H2 witnessed weaker growth, primarily driven by a decline in consumer sentiment among middle- and high-income individuals and a high comparable base in the third quarter.

“The solid double-digit rebound is commendable, but China’s luxury market has not fully recovered to its 2021 levels. The recovery was tempered by the challenging economic climate and increased overseas shopping. As the market transitions to a post-Covid growth phase, uncertainties remain regarding the speed at which consumer confidence will resume and how overseas luxury shopping will evolve,” said Bruno Lannes, a Shanghai-based senior partner at Bain & Company.

2023’s rebound was supported by all categories in China’s luxury market. Fashion and Lifestyle and Jewelry led the strong recovery with growth rates ranging from 15% to 20%. Leather Goods grew at 10%-15% as consumers focused more on the lower-price bag segment. The Beauty category saw solid growth of approximately 8%, driven by excellent momentum in fragrances and makeup, while Watches saw a softer rebound, with growth rates ranging from 5% to 10%, driven by contrasted performance across brands.

Duty-free sales in Hainan expanded by about 25% in 2023 year-on-year, though not back to its 2021 high. This rebound can be attributed to the recovery in domestic travel and stimulus measures implemented by the Hainan government. Interestingly, the average spending per shopper decreased by more than 25%, likely due to lower discount levels, fewer Daigou activities, and an increased rationality among consumers.

Bain highlighted two trends that has shaped China’s luxury market in 2023 and will continue to do so in the future.

Trend 1: Return of luxury shopping overseas

Over 90% of luxury shopping happened domestically during the pandemic years as borders closed. As Chinese overseas tourism has resumed, Bain expects domestic luxury spending to decrease to 70% in 2023. Notably, the recovery of Chinese tourists' luxury spending in Europe and Asia has been significant. 2023 Chinese luxury spending in Europe and Asia made up around 40% and 65% of their 2019 spending levels in those markets, respectively.

The pricing gaps between luxury goods in mainland China and other markets have played a critical role in the resurgence of overseas shopping. A sample check of leading products in mainland China, Europe, and Asian markets has revealed significant price gaps across categories such as fashion and leather products, making luxury shopping abroad more attractive. Importantly, these price gaps have remained unchanged compared to 2022. 

Trend 2: Evolution of Daigou

South Korea's duty-free market has historically been a significant source for Daigou, particularly in the luxury beauty sector. However, Korean duty-free sales to international travelers is estimated to experience a 30% decline to approximately 60–65 billion RMB. This is due to restriction in Daigou commission fees to travel agencies, and brands limiting supply of popular beauty products in the Chinese market.

Despite higher restrictions on Daigou activities in the Beauty sector, new and more professional Daigou models are emerging, particularly in the Fashion and Leather Goods sector. By embracing a more platformized approach, Daigou operators provide consumers with an aggregated and authenticated avenue for shopping and by accessing overseas goods from wholesalers at lower prices.

The Daigou market is unlikely to cool off, and its future trends will depend on brands' global control over their wholesale market overseas.

“The extent of this recovery in 2024 will primarily depend on the speed of economic recovery and changes in travel and lodging costs. Another year of recovery for Chinese overseas luxury consumption, particularly in Asian destinations, is expected. It remains crucial for brands to implement harmonized global pricing strategies to maintain consumption in the mainland market,” said Weiwei Xing, a Hong Kong-based partner at Bain & Company.

In 2023, Chinese luxury consumption is estimated to account for approximately 22%-24% of the world's total, with consumption in mainland China comprising about 16% (both excluding Daigou). By 2030, Chinese luxury consumption is expected to reach 35%-40% of the world's total, with consumption in mainland China reaching 24%-26%, solidifying its position as one of the leading luxury markets globally.

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Editor's Note: For more information or interview requests please contact: Ann Lee; tel:   +65 6228 2960; email: ann.lee@bain.com

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