China’s personal luxury sales contracted 10 per cent year-over-year (YoY) in 2022, as per a new report from Bain & Company. The country's five-year run of steady growth came to an end due to the impact of COVID-19 lockdowns and declining consumer sentiment. However, positive conditions are expected to return before the end of the first quarter of 2023.
Online penetration played a significant role in how different luxury categories were impacted. Jewellery and leather goods sales showed the most resilience, declining by only 10-15 per cent, while fashion and lifestyle categories contracted by 15-20 per cent, noted the report titled ‘Setting a New Pace for Personal Luxury Growth in China’.
The report also identified three major trends that could influence the luxury market’s comeback. The expansion of China’s luxury market's VICs (Very Important Clients) was one of them, as the economic slowdown affected entry-level luxury consumers more than high-net-worth individuals. The duty-free ecosystem, including Hainan and China Duty Free Group, was also noted as a trend, although COVID restrictions in 2022 resulted in a decline in duty-free sales in Hainan. Finally, the report touched on global pricing strategies, as most brands have not sought to harmonise pricing between China and the rest of the world, leading to significant price gaps between China and Europe.
Bain & Company expects growth to resume in 2023 as China recovers from the pandemic, with the fundamentals of consumption in China still intact. The firm projects that China will see 2021 sales levels between the first and second half of 2023, but brands must resolve pricing gaps between China and Europe before international travel resumes. Brands that understand the nuances of the China luxury market will succeed in the long-term, according to the report.
“Luxury consumption will recover as COVID subsides, mall traffic improves, and consumer sentiment rebounds. We expect to see 2021 sales levels sometime between the first and second half of 2023,” said Weiwei Xing, a Hong Kong-based partner at Bain & Company. “While optimism abounds, there are also risks. Brands need to resolve pricing gaps between China and Europe before international travel resumes. In addition, as more Chinese HNWIs are residing outside of China, luxury brands must deliver excellent experiences everywhere in the world.”
Fibre2Fashion News Desk (KD)