The Chinese demand for luxury goods is immense. It is creating a unique, dynamic and rich digital luxury retailing environment.
This report looks at the growth of the global and Chinese markets for luxury goods. We estimate the size of the Chinese online luxury goods market. We then discuss what is responsible for creating China’s over-sized online luxury market, and the motivations of different customer segments.
This report will be of use to those interested in the luxury goods markets, Chinese retail and digital marketers generally.
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Image Acknowledgments:
Front cover: ChinaLuxuryNetwork.com
Introduction: FT Tilt
matthunter.com
DIGITAL ◊ PRODUCT DEVELOPMENT ◊ STRATEGY
AMS 3
4. Agenda
• China and the global market for luxury goods
• Role of the internet in Chinese luxury consumption
• Driving forces behind online growth
• Online luxury goods customer segments
• Future trends
AMS 4
5. A Chinese Obsession?
Globally the luxury goods market is thriving. China has emerged as a major driving force
behind this vitality. In recent years, Chinese luxury goods purchases have surged.
The domestic market is growing rapidly, as young, rich elites are reaching out to embrace
finer fashions. The markets of Greater China continue to boom. And Chinese travelling
abroad are becoming the leading consumers in major fashion destinations.
Chinese consumers are fast becoming central to the global luxury goods industry
AMS 5
6. The market for luxury goods is seeing exceptional growth
globally
Worldwide Luxury Goods Market by Area
Luxury Spending CAGR
09-11
€200B 191
13%
171
5%
150
150 Other
26%
Japan
Asia-Pacific
100 13%
Americas
50
Europe 9%
0
2009 2010 2011E
Source: Bain & Company AMS 6
7. As China’s domestic economy has surged, demand for luxury goods has grown rapidly.
Areas such as Shanghai’s bund abound with high-end stores for luxury brands of all
descriptions.
AMS 7
8. China’s domestic market has grown twice as fast as the
global market
• China’s luxury goods market Chinese Personal
doubled in size between 2009 and Luxury Goods Spending
2012
€20B
• Extensive growth: luxury goods
becoming more widely available 15
-In 2011, China saw almost as many new 15
openings of luxury retailer branches as Europe 13
and the USA combined
- Luxury retailers have pushed out from the major
(“tier 1”) cities to begin colonisation of tier 2 and 10 10
tier 3 cities
- 66% of YOY growth comes from new customers 7
5
• Intensive growth: luxury
consumers spending ever more on
luxury goods
-33% of growth comes from existing customers 0
increasing purchases 2009 2010 2011 2012E
-Small high-end clientele developing heavy
purchasing habit
-Significant aspirant middle-class now spending
above Western norms
Note: 2011 estimate as per Bain; 2012 revenues estimated at 18% YOY growth from 2011 as per McKinsey forecast
AMS 8
Source: Bain & Company (China Luxury Market Study 2011); McKinsey & Company (McKinsey Insights China)
9. Consequently, Mainland China’s luxury goods market
became the 5th largest in the world in 2010
Personal Luxury Goods Market –
Ranking by In-Country Spending (2010)
Source: Bain & Company; China Luxury Market Study 2011
AMS 9
10. However on a global scale, Chinese luxury purchases are
even more significant
Luxury goods purchases in Chinese Mainland consumers
Chinese societies total €26.6B spend > €6B in Euro markets
China
€12.9B
Taiwan
€3.9B
HK Macao
€5.8B €0.8B
Paris
€4.3B
Milan
€2.0B
S’pore
€3.2B
Note: Data based on 2010 revenues AMS 10
Source: Bain & Company; China Luxury Market Study 2011
11. 50% of luxury goods purchased in Milan and Paris are
bought by visiting Chinese
Note: Data based on 2010 revenues
AMS 11
Source: Bain & Company; China Luxury Market Study 2011
12. Chinese consumers are fast becoming the main driving
force of global luxury
Including purchases in Mainland China, Taiwan, Hong Kong,
Macau & purchases by Mainland Chinese when travelling
abroad, Chinese consumers drive
25% of all global luxury purchases
AMS 12
13. Agenda
• China and the global market for luxury goods
• Role of the internet in Chinese luxury consumption
• Driving forces behind online growth
• Online luxury goods customer segments
• Future trends
AMS 13
14. Chinese consumers are more reliant on the Internet than other
nationalities to…
-…discover luxury brands
-…research products
-…and complete their purchases
And consequently, the internet accounts for an unusually large
share of total purchases
AMS 14
16. However, the internet is the next most important influence
in persuading Chinese to buy luxury goods
Purchase influencers
Note: Derived from regression of whether consumers purchased products from a luxury brand with whether they experienced a certain touch
point and how the information was received (positively or negatively). Internet specific responses scaled to 100%. Survey products include
RTW, Bags, Shoes, Jewellery & Watches. Based on a survey of 2,422 consumers. NB: McKinsey survey therefore largely assumes correlation
is causation
AMS 16
Source: McKinsey & Company; McKinsey Insights China (2010)
17. Amongst internet interactions, paid advertising and social
reviews are of near equal importance in persuading shoppers
to buy
Purchase influencers: Internet only
Note: Derived from regression of whether consumers purchased products from a luxury brand with whether they experienced a certain touch
point and how the information was received (positively or negatively). Internet specific responses scaled to 100%. Survey products include
RTW, Bags, Shoes, Jewellery & Watches. Based on a survey of 2,422 consumers. NB: McKinsey survey therefore largely assumes correlation
is causation
AMS 17
Source: McKinsey & Company; McKinsey Insights China (2010)
18. When researching, social media is the channel most commonly
used to obtain information on luxury goods
“Which channels of the Internet do you normally
get information on luxury goods from?”
Note: Social Media includes: SNS, Weibo (Chinese Twitter-style micro-blogs) and Blogs AMS 18
Source: Bain & Company; China Luxury Market Study 2011
19. Although China has a vigorous and well established
fashion press…
AMS 19
21. Chinese consumers’ opinions on luxury brands are heavily
shaped by fashion blogs
Consumers who say their opinions on luxury
goods and brands are shaped by fashion blogs
Source: Altagamma
AMS 21
22. After researching online, Chinese luxury consumers are
exceptionally likely to make purchases online
% of Luxury Consumers Making Purchases Online
Source: Altagamma
AMS 22
23. As a result, the online share of luxury spending is far higher in
China than elsewhere
% of Luxury Consumers Making Purchases Online
Note: China online figures understate sales by excluding direct retail by major brands
2012 Figures include linear extrapolation based on YOY growth rates from 2010-2011
Source: Data from Bain & Company (Global total, Global online, China total); iResearch (China online)
AMS 23
24. These figures imply China has the world’s leading online
luxury goods market
AMS 24
25. What does this really tell us?
• 13% online penetration vs.
3% online penetration as a
global average is a
tremendous difference
• Given the uncertainty in
measurement and differences
in categorisation of “luxury”
it’s possible the true figure is
significantly lower
However, we can reasonably conclude that the online
market is significantly more important in China than in
established markets
AMS 25
26. Agenda
• China and the global market for luxury goods
• Role of the internet in Chinese luxury consumption
• Driving forces behind online growth
• Online luxury goods customer segments
• Future trends
AMS 26
27. Unique factors have led to accelerated development of China’s online
market
• Luxury brands are rapidly increasing their store footprint across China. However,
this development has lagged growth in domestic demand and in many cases
Chinese stores fail to match the range and experience offered by overseas
stores. Underserved Chinese customers have turned to the internet to fulfil
their needs.
• Online behaviour varies by customer type. An unusually young, rich elite uses
the internet as a tool of convenience to order luxuries as simply as ordering
commodities. Fashion fanatics develop sizeable online followings from eager
aspirants. And a growing core market turns to the web to flaunt their latest
purchases, much as a peacock fans its feathers.
• Collectively these factors make the online environment exceptionally important
as a researching and purchasing medium for Chinese luxury shoppers
AMS 27
28. A relatively undeveloped network of stores has
contributed to the growth of online
• Luxury brands have accelerated store
roll-outs across Mainland China in recent
years, with China receiving as many
store openings in 2011 as the US and
Europe combined
• However, surveys suggest this roll-out is
long overdue and that many luxury
retailers are failing to provide an
adequate level of service in their
Chinese stores…
-45% of Chinese who travel abroad to purchase
luxury goods do so because they find the service
and shopping experience superior
- 69% say they find more variety when shopping
overseas
• For customers unimpressed with store
service or located in un-served towns,
online has grown in prominence
Source: World Luxury Association 2012
AMS 28
29. Wealthy Chinese are younger than their counter-parts in
developed economies
The average American
millionaire is 64 years
China’s average old
millionaire is 39 years
old
With youth comes a deeper affection for internet shopping
Source: Li & Fung
AMS 29
30. Agenda
• China and the global market for luxury goods
• Role of the internet in Chinese luxury consumption
• Driving forces behind online growth
• Online luxury goods customer segments
• Future trends
AMS 30
31. We can obtain a picture of China’s online shoppers by
combining several studies
• A number of reports from leading consultancies and
agencies have provided customer segmentation and
demographic information on China’s luxury shoppers:
-Hurun Wealth Report: Demographics on China’s
emerging elite
-McKinsey China Insights: Buying habits examining the
share of income spent on luxury goods
-Group M – CIC Internet Word of Mouth Social Media &
Luxury Study: Online behaviours of a range of groups
• Each of these reports uses different methodologies
and has a different focus making them imperfectly
compatible – however, combining aspects of these
studies allows us to sketch a more robust picture of
online luxury consumer behaviour
AMS 31
32. McKinsey categorise luxury archetypes based on annual
luxury spending and share of income spent on luxury
Percentage of annual income
Annual luxury spending spent on luxury goods
150
RMB150K 50%
42
40
100
30
70
20 18
50 45
11
20 10 8
0 0
Luxury Fashion Core Middle Luxury Fashion Core Middle
Role Fanatics Luxury Class Role Fanatics Luxury Class
Models Buyers Aspirants Models Buyers Aspirants
McKinsey’s original figures for annual spending, household proportions and share of total consumption are not internally consistent; and
imply a different total market size. Information should not be used for market-sizing.
Source: McKinsey Insights China (2010) AMS 32
34. Luxury Role Models are likely to be a driving force of
online purchasing
AMS
Image Credit: Lifeisnothingwithoutstyle.com;Source: Hurun Wealth Report; Group M; China Daily, iResearch, McKinsey & Company 34
41. Summarising: these four groups likely have very different
behaviours online
• Luxury role models • Likely to purchase online
• Price insensitive
• Range and service focused
• Fashion fanatics • Online opinion leaders
• Weak likelihood to purchase
online due to love of shopping
experience
• Style focused
• Core luxury buyers • Shai-sharers and online
researchers
• Influenced strongly by fashion
fanatics and moderately by peers
• Unlikely to buy online
• Middle class aspirants • Uncertain of purchases
• Heavily reliant on online research
• Likely to buy online only
via off-price channel
AMS 41
42. Agenda
• China and the global market for luxury goods
• Role of the internet in Chinese luxury consumption
• Driving forces behind online growth
• Online luxury goods customer segments
• Future trends
AMS 42
43. Brands need a digital vision of luxury
The digital space is becoming crowded. A surge of private equity
and venture capital investment has led to a number of high profile
third party retailers attempting to address China’s digital luxury
consumers. Full-price and off-price offerings abound.
Active online followings have the potential to benefit brands. But
luxury brands face the challenge of managing their relationship with a
highly engaged digital population, whilst maintaining an aura of
exclusivity. Employing common buzz-based digital techniques
pioneered by FMCG brands will run counter to overall values.
The over-riding challenge is to deliver a distinctive, high quality
service that differentiates the excellent from the good. Those
that discover how to do this using bits and bytes rather than leather
and gold will lead the coming era.
AMS 43
44. Beyond exclusivity
To re-create the sensation of
luxury in a digital setting we must
first appreciate the essence of
luxury
To many, luxury means “rarity”
But in a digital world, rarity is
artificial: abundance is a CTRL+V
away
So brands and designers must
find a deeper appreciation of
luxury to convey
AMS 44
45. Beyond
craftsmanship
In the seams of a fine coat or the
workings of a fine watch, the
sensation of craftsmanship and
excellence become palpable
But in the digital world, the scope
for differentiation through quality
is limited. Flawless operation is a
prerequisite for even the humblest
of websites; and flamboyant
technical genius is often perceived
as an intrusion or barrier.
AMS 45
48. The essence of luxury lies in emotion and
storytelling
Beyond rarity and craftsmanship, the value of luxury goods stems from an
emotional power
If…
luxury goods are an embodiment of fantasy in consumable art
Then perhaps ownership buys…
the freedom to redesign our self image;
to borrow the manna of a designer or craftsman;
to absorb the physical characteristics of fine leather or metal
In the digital space where the physical becomes imperceptible, the promise of
luxury goods must be established through a different narrative – stories and
experiences that lend us the same ability to dream or elevate ourselves
AMS 48
49. The luxury brand of the future is the
digital storyteller
AMS 49
50. Matt Hunter is a digital marketing specialist with 8 years
experience. He previously worked at management consultancy
Bain & Company in London, Johannesburg and Sydney before
heading digital marketing and product development at
Confused.com, a successful UK internet business.
He specialises in digital marketing, product development and
strategy.
He holds an MA in Economics & Management from the University
of Oxford, an MSc in Strategic Information Systems from Cardiff
University and is currently completing the MIT-Tsinghua MBA in
Beijing, China.
<< Available for opportunities in digital marketing, tech start-ups or
PE/VC funds; and roles with Asian exposure. >>
Email: ProfessionalEnquiries@Gmail.com
LinkedIn: http://cn.linkedin.com/in/digitaldirector
matthunter.com
DIGITAL ◊ PRODUCT DEVELOPMENT ◊ STRATEGY
AMS 50
51. Appendix: Combining estimates from Bain & Company
and iResearch suggests ~13% penetration
2010 2011 2012
China 9.6 12.9 15.2
China Online 0.8 1.4 2.0
China Online % 8.6% 10.8% 13.1%
ROW 163.4 178.1 185.1
ROW Online 3.7 4.2 5.5
ROW Online % 2.2% 2.4% 3.0%
• China online figures understate sales by excluding direct retail by major brands. 2012 Figures include linear extrapolation based on YOY
growth rates from 2010-2011. Data from Bain & Company (Global total, Global online, China total); iResearch (China online)
AMS 51