The global luxury industry has long relied on China’s wealthy millennials for a boost in sales – they are, after all, the demographic that contributed most to the industry’s growth in 2017. They’re also the fastest-growing demographic in China, and they’re often early adopters of new trends and technology. But a recent tightening by the Chinese government on overseas luxury purchases is forcing designer brands to begin rethinking their strategies, as shoppers look to buy their luxury goods back home. According to a report by Boston-based consultancy Bain & Co, Chinese consumers were responsible for purchasing approximately one third of the world’s luxury goods, but the downside of this (for China, at least) was that 75% was overseas sales, with $115 billion spent during more than 130 million overseas visits in 2017.
With the Chinese government tightening its regulations, consumers are now seeing holidays abroad – typically taken so that they can stock up their wardrobes with the latest luxuries from designer boutiques – as less of a viable option. Undeclared luxury goods brought into China from abroad can now land the buyer with a huge tax bill, or even legal trouble. This also impacts the trade of luxury goods by “daigou” – Chinese traders who travel overseas for luxury products, before selling them on back home for less money than they would cost in the stores.
It would seem that the situation isn’t being helped by China’s millionaires, who are increasingly moving away from purchasing high-end material goods to investing their money in intangible luxuries – such as travel (with Japan and the Maldives proving the most popular destinations), and healthcare.
That said, Chinese millennials – and the luxury brands fuelling their fashion needs – don’t need to fret just yet. Local shopping malls in China are slowly starting to reap the benefit of the government’s enforcements at border control – to the point that shops in these malls are increasingly being leased to luxury brands looking to expand their physical presence in China. Half of consumers themselves have also said that they’re planning to spend more on luxury goods generally this year, so the potential return on retail investment could be huge. With savvy shoppers on the hunt for brands such as Cartier, Burberry, Bulgari, Valentino and Louis Vuitton, their wish lists are as expensive as they extensive.
Not only that but brands including Hermes and Louis Vuitton are banking on keeping the tills ringing by lowering their product prices in China. This follows the government’s move to reduce import tariffs on certain consumer goods, as part of Beijing’s concerted bid to bolster domestic consumption (Western products sold in China can be typically as much as 20% more expensive than if they were purchased in Europe).
It’s not just well-known luxury labels – for years, the preserve of the affluent consumer – that are realising the impact they can have on the mainland. As growing sophistication in new styles develops, this has led in turn to a new interest in luxury clothes and accessories by Chinese designers. Hong Kong-based market researchers Consumer Search Group recently released a report that showed almost three quarters of affluent Chinese consumers are aware of at least one Chinese designer – and with Chinese names making big waves not just in China but increasingly further afield, it’s not hard to understand why. Angel Chen – for instance – is stocked at 30 retailers worldwide, Samuel Gui Yang presents collections in both Shanghai and London, and Ximon Lee was catapulted into the fashion mainstream spotlight when Kanye West told him he was “killing it, bro!” If Chinese designers are catching Yeezy’s attention, it won’t be long before the rest of the world follows suit and puts Chinese fashion firmly front and centre. That can only be good news for the brands back home hoping to entice consumers through their doors, and good news for the shoppers themselves, as Chinese labels increase in worldwide visibility. Perhaps not such good news for their bank balances….