China’s luxury goods market has nearly doubled this year, as consumers had to spend cash inside the country due to the Covid-19 outbreak. The market is set to expand further to become the largest in the world.
Despite a rocky start to the year, during which the Chinese government had to impose a strict lockdown to contain the spread of the virus, the domestic luxury goods market has not only recovered in 2020, but also managed to expand. According to a report published by consultancy firm Bain & Co. and Tmall, an online retail platform operated by Alibaba, the Chinese luxury market is set to grow 48 percent this year and reach 346 billion yuan ($53 billion).
While the global luxury market fell around 23 percent, mainland China’s share nearly doubled. It rose from about 11 percent last year to 20 percent in 2020, as big-spending Chinese buyers switched to domestic malls and e-commerce platforms, instead of looking for discounts at international shopping hubs.
However, the report noted that the growth in mainland China failed to compensate for an approximately 35 percent drop in Chinese consumers’ total luxury spending and the Chinese consumption lost overseas. Nevertheless, the positive trend is set to continue, the authors of the report say, forecasting that China will be the main driving force of the market in five years.
“We anticipate this growth to continue, putting the country on track to claim the biggest share of the market by 2025 – even after the world luxury market returns to pre-Covid-19 levels,” the report said. “Regardless of the potential for short-term changes, the momentum of China’s luxury goods market is poised to continue.”
Bain and Tmall’s joint research showed that four factors were also behind this year’s results – namely repatriation, millennial and Gen Z shoppers, digitalization, and the Hainan island duty-free stores. The latter played a role in the growth, according to the report.
Some Chinese brands saw double- and even triple-digit increases in the rate of domestic luxury spending due to border closures. They will continue to enjoy positive domestic growth of around 30 percent at least until the second half of next year, the report predicts. It noted that before the situation in the world gets back to normal, local producers will have to convince Chinese luxury consumers that domestic shopping is a better choice.
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