After decades of communism that transformed into capitalism, China is now into consumerism. Economists and retail experts have projected China to consume luxury goods big time.
Who is behind this consuming revolution? Here are 10 things to know about the Chinese luxury consumer.
1. Upper Class Consumers are Just One Percent of China’s Population
The big ticket purchases that often make the headlines are made by the upper class consumers in China. Yet, this group comprises less than one percent of the Chinese population.
2. Young and Affluent Population
According to the Hurun Report, China has the second most billionaires in the world. Of the 130 billionaires in China, 94 of them are under the age of 40. This is supported by a report from McKinsey that shows 80 percent of China’s affluent population is under 45 compared to 30 percent for the United States and 19 percent for Japan. Among the richest men in China, 3 out of 5 are in their 30s, and the average age of the richest men is about 47 compared to 60 in Europe. Those in the 25-40 age range spend more annually versus the 40-70 age range for the West. This matches with China’s dalliance with capitalism in the past 20-plus years. As mentioned in our article, The China Opportunity: Younger and Richer, the Chinese are getting richer at a younger age compared to other Asian countries as well.
3. Got Rich Fast, Spend Fast
Many wealthy Chinese acquire their wealth in a short time period which translate into a different spending pattern than the affluent population of other nations. Consumers who acquire their wealth easily tend to have a different financial management and consumption mindset than those who build their wealth through years of hard work.
4. Luxury a Status Symbol
Luxury goods are seen as status symbols. About 65% of consumers equate luxury brands with success. Often, social statements are made using luxury products.
5. Buying Lots of Gifts
Gift giving is a big part of consumption and central to Chinese culture which is largely known as guanxi, the Chinese term for personal connections or network of influence as a way to win personal favor such as getting new clients and recommendations. About 50% of the luxury consumption in China, estimated at US$4.75 billion in 2009, is from companies gifting to clients.
6. Luxury Consumers are Not All the Same
Luxury consumer profiles and attitudes differ significantly across various cities and regions in China. In the Northeast, the tendency is for conspicuous consumption — meaning logos matter. In the South, consumer are generally more conservative and pay attention to details. In the Central region such as Chengdu, where incomes are generally lower, consumers are spending beyond their means and are often considered aspirational consumers. In cosmopolitan cities like Shanghai, the luxury consumers are generally more sophisticated and being understated is becoming more desirable. Aside from displaying status, consumers are likely to purchase luxury goods for enjoyment, experience and taste.
7. Big Spenders are in the “Mature” Markets
Big spenders are generally found in Hong Kong, Tier –1, and then Tier-2 cities. Beijing consumers have a fondness for luxury fashion and accessories. High-level professionals in Beijing or Shanghai often favor international destinations for shopping. Popular shopping cities like Tokyo, Paris and New York have supplanted Hong Kong, which used to be very popular. One reason for this trend is the easing of travel restrictions for many residents from these major cities.
8. Brand Loyalty Stronger than You Think
Brand loyalty is relatively strong. In a study by Ruder Finn, more than 47% of respondents from China indicate they are loyal to brands. This pattern is similar throughout China, with higher brand loyalty reported for Hong Kong at 55%, which is the only region to exceed 50%.
9. Men Consume More Luxury than Women
Chinese luxury market is still very much dominated by middle-aged men. The higher-wealth group generally consists of men around age 44 with over 15 percent of them living in Beijing. They have their own company, but have made their fortunes in property and investments. Men tend to spend on watches, jewelry and luxury cars. Most of their purchases are for gifts. Within this group is the provincial super rich men who are dressed casually with “short-sleeve sport shirts and simple blue pants with leather pouches in hand.” Describe by some as tu or peasant, these men have some of the most spending power. They are often businessmen in manufacturing, coal mining or other heavy industries from the northern or western regions of China.
10. Women “Aspirational” Consumers are the Fastest Growing Group
HSBC reported last year of the increasing financial independence and buying power of Chinese women. Educated women are entering the office work force in droves. The white-collar “aspirational” shopper is the fastest-growing group in China, according to China Market Research (CMR). These women in their 20s, often earn no more than $400-$500 a month, will save to buy a Louis Vuitton bag. Women are the predominant buyers of brands like Vuitton and Gucci. Those brands they favor will likely grow their market share as the overall market gets bigger. CMR expect this group to become 60 to 70 percent of the overall market.