Gifts / Sports & Toys

According to the observation of Huacheng's import and export data, China's luxury goods market has been booming in the past five years, reaching its peak in 2021, approaching 500 billion yuan, an increase of 42% compared with 2019, and nearly doubling. However, affected by the epidemic, domestic economic and social activities slowed down, leading to a significant decline in the growth momentum of China's luxury market in 2022.

According to the latest "2022 China Luxury Market Report" released by Bain Company, the Chinese luxury market fell by 10% to 450 billion yuan in 2022, and the rapid growth for five consecutive years has temporarily ended. However, the Report predicts that China's luxury market will return to positive development before the end of the first quarter of 2023.

Different categories are affected

At the beginning of 2022, China's luxury goods market made a strong start, but since the second quarter, the epidemic situation in various regions has repeatedly led to high consumption and low consumption. At the same time, the cooling of the real estate market, increased income uncertainty and concerns about the COVID-19 epidemic have weakened consumer confidence.

The Report shows that almost all luxury goods have been affected by the market downturn, but to varying degrees. The categories with high penetration rate of online channels are less affected by the epidemic and perform relatively well. For example, the luxury beauty category with online channel penetration of up to 50% has only shrunk by about 6%. The categories with relatively low online channel penetration (10%~15%) are also relatively affected by the epidemic. Among them, the wrist watch market has declined the most, with a decline of 20% to 25% compared with 2021; Fashion and lifestyle categories declined by 15% to 20%; Jewelry and leather goods fell by 10% to 15%, and Huacheng's import and export data were observed and reported.

According to the Report, the performance of non-beauty category is consistent with the past trend - when it comes to decline, the performance of jewelry and leather goods category is often the best, followed by fashion category, and the performance of wristwatch category is the weakest.

Bruno, a senior global partner of Bain Company, said that although most luxury brands experienced a decline in performance in 2022, some brands bucked the trend and remained stable and even achieved growth. "Their success is attributed to three factors. First, the performance of big brands is often better than that of small brands; second, the performance of brands with iconic classic products is better than that of brands with major popular or seasonal products; and finally, the performance of brands with high concentration of VIP customers (very important customers of Very Important Customer) is better."

According to Huacheng Import and Export Data Observation, the decline in 2022 is only a temporary setback. Looking forward to 2023, as China gradually recovers from the impact of the COVID-19, shopping mall traffic and consumer confidence will also rebound, the luxury market will be back on track, and luxury sales will return to the level of 2021 by the middle of 2023. The consumption fundamentals of the Chinese market are still stable. Compared with other emerging markets, China has more middle - and high-income consumers, and the number is expected to double by 2030. This shows that China remains an important growth engine in the global luxury market.

Focus on three key areas to support market recovery

Speaking of the recovery momentum of China's luxury market, the Report believes that the expansion of VIP customers, the tax-free ecosystem and the global pricing strategy are three key points.

In terms of VIP customers, the concentration of VIP customers in China's luxury market is relatively high, which has been further improved in 2022. Compared with high-net-worth people, entry-level luxury consumers are more affected by the economic slowdown. In 2022, the epidemic prevention and control measures led to a decrease in the number of customers in the shopping mall, making the sales more concentrated on the VIP customers. The average sales concentration of VIP customers in the global market has reached 40%, while the sales concentration of some luxury brands in the Chinese market has exceeded this level.

In the online channel, VIP customers are also the main force to buy luxury goods. Taking the leading brands of Tmall luxury goods as an example, shoppers who consume more than three times in a year have contributed more than 50% of their sales, becoming the fastest growing consumer group.

In terms of the tax-free system, in recent years, duty-free shopping in Hainan has made outstanding contributions to the prosperity and development of China's luxury market. However, in 2022, affected by the epidemic, Hainan's tax-free sales are expected to be about 35 billion yuan, down about 30% year on year. The per capita consumption of shoppers increased by 8%, slightly offsetting the impact of the decline. At the same time, China Exemption Group and its subsidiaries offset the impact of air travel restrictions by vigorously promoting domestic e-commerce business. In the first half of 2022, dutiable goods contributed nearly 40% of the income of the China Exemption Group.

However, with the liberalization of domestic travel restrictions, duty-free consumption in Hainan's outlying islands has resumed its popularity during the Spring Festival holiday this year. According to Huacheng Import and Export Data Observation, from January 21 to January 27, Haikou Customs supervised 1.56 billion yuan of duty-free shopping in outlying islands, an increase of 5.88% over the Spring Festival holiday in 2022; The number of duty-free shoppers was 157000, an increase of 9.51% over the Spring Festival holiday in 2022; Per capita consumption is 9959 yuan. Bain expects that Hainan will become a major destination for domestic tourists, especially Chinese tourists.

In addition, in 2022, the number of tourists to South Korea dropped by more than 90% (compared with 2019), but the duty-free sales of cosmetics in South Korea remained at about 70% in 2019. This shows that cross-border export transactions such as purchasing on behalf of others are still active, and that the duty-free market in South Korea still plays a very important role in the broader Chinese luxury beauty ecosystem.

In terms of pricing strategy, similar to the situation before the epidemic, some luxury goods have a large price difference between China and Europe. During the epidemic, only a few brands adopted the global unified pricing strategy. Taking leather goods as an example, Bain found through investigation that the price difference between China and Europe reached 25%~45% without VAT refund (10%~12%). Among them, the price difference of entry-level luxury goods is higher than that of more expensive luxury goods. Among other categories, the price difference of shoes is relatively large (25%~35%), while that of jewelry and watches is relatively small.

Xing Weiwei, global partner of Bain Company, said that although the prospects for the new year are optimistic, there are also hidden risks. For luxury brands, the focus in 2023 is to control the large price difference between the Chinese market and the rest of the world, while providing cross-border customer experience and VIP customer relationship management. Brands that can deeply understand the differences in China's luxury market will be successful.