The Desire to ‘Trade Up’ Keeps China Luxury Strong

on January 2 2013 | in Retail Trends | by | with No Comments

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The Harvard Business Review (HBR) says that China will surpass the United States as the second-largest market by 2015, accounting for $87 billion (23 percent) of a $379 billion personal luxury market, and that by 2020, it will have a 40-percent share of the pie. Analysts insist that this rise upward will be driven by “the growing number of middle-class and affluent city dwellers” looking to “trade up” into a luxurious lifestyle focused on individuality, and possibly improving upon the so-called American Dream in the process.

With the burgeoning of all sorts of luxury brands in the country, the Chinese are becoming more impatient with their purchasing. They are embracing the “now” mentality so popular in America by opening up credit cards. HBR reports that in 2005, fewer than 50 million credit cards were issued. By 2010, the number had risen to 221 million. By 2020, credit card companies will be looking to triple even this number.

Francois Pinault, CEO of PPR, explained the shifting purchasing practices this way: “The Chinese consumer has a profound belief that they deserve luxury products now. They had fifty years with so little, and now, many can afford to buy luxury goods. Their growth in demand is rooted in an expression of individualism in the way you dress. It is a way to differentiate yourself from friends and neighbors. Chinese consumers buy to treat themselves. This China market has evolved faster than any other market in the world.”

Women are taking a greater role in luxury spending than the Chinese have thus far experienced. Prada recently announced that sales in China rose 33 percent year-on-year in the third quarter, in step with a 30 percent year-on-year net income increase in the same quarter. The company also reported a 54% year-on-year increase in sales in Europe, which it attributed in part to Chinese tourists, who have a great respect for Prada’s designs, price points, and subdued logos.

“Just 1 percent of consumers are millionaires, and they take 20 percent of our sales,” a senior executive for Chanel, the French high-fashion house, told HBR. “But the middle classes are the key drivers for the future.” The Boston Consulting Group reports that by the end of the decade, Chinese consumers will spend approximately $41.5 trillion, with annual expenditures increasing from $2 trillion in 2010 to more than $6 trillion in 2020.

In the end, HBR makes a bold assertion, “Most middle and upper middle class households in China have limited debt, an increasing commitment to education, and soaring aspirations. They are customizing — and improving upon — the so-called American Dream.”

[hbr]
photo credit: chanel

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