Luxury Sales in China to Surge, Brands to Benefit from Loyalty [Report]

As the global spend on luxury goods continue to rise, luxury sales specifically in China are significantly on the increase along with many trends reshaping the sector resulting in opportunities for brands which may be better served by building loyalty rather than simple strategies that concentrates on expansion possibilities.

Premium goods’ sales on the Chinese mainland experienced an upward shift by 27% RMB87bn ($13.7bn) during 2010, with figures predicted to reach RMB110bn by the end of 2011, a 26% increase, according to Bain & Company, the consultancy.

Having to deliver over 60% of growth this year are new customers, according to suggestions from Bain & Company along with existing buyers climbing from 33% to 37% year-on-year. However, it reported that a handful of leading brand owners are “cautiously optimistic” for their prospects during the next year because they “don’t have enough visibility”.

In a solution to the above, the study argued that “Some brands are making conscious decisions to reduce the pace of expansion and focus more on store performance improvement.” Bringing in an example, having to experience a rise in demand by 30% in 2010 were leather goods but it’s believed to have a slow growth to around 25% by this year end. Similarly, the rate of growth in the watched category will also fall from 45% to 40%.

Overtaking perfume and cosmetics category by the end of 2011 will be watches which will become the largest luxury category in China, totaling to a value of RMB20bn on the mainland, a 30% share, compared to a global average of 20%.

Similarly, also expecting to enjoy impressive growth levels is the menswear as there is a greater male bias in the luxury market in China than is typically the case at the global level. Elsewhere in the report, having to remain stable at 20% by the end of 2011 will be the growth in the high-end shoes category, with personal care also unchanged, with a 22% shift annually.

Customers are also encouraged to purchase products at a cheaper cost overseas as high prices keep on influencing the Chinese market. Sector expenditure rose to RMB159.5bn in 2010 when including Hong Kong and Macau, hitting upto RMB212bn for all worldwide purchases made by consumers in China.

Citigroup’s Head of Regional Consumer Research, Eddie Lau, said. “Chinese shoppers could cut back spending on luxury items in the near term, as the stock markets and the property markets have corrected steeply this year. The wealth effect is fading.”

Data sourced from Financial Times, China Daily, People’s Daily; additional content by MP Staff