The Chinese luxury market has gone through changes in 2014 driven by changes in consumer behavior and the government crackdown. What can we expect in 2015?
The recent Ruder Finn and Ipsos’ China Luxury Forecast survey provides a glimpse into what we can expect in luxury consumer trends for 2015 in domestic retail, travel, duty free shopping, and e-commerce.
Ruder Finn and Ipsos surveyed over 1,900 consumers in mainland China and Hong Kong from first, second, and third tier cities, reports Luxury Daily. The average annual household income for those surveyed was $125,000 for those on the mainland and HK$126,900 in Hong Kong.
International Luxury Retailers Will Accommodate Chinese Customers Better
The China Luxury Forecast found that among respondents from mainland China and Hong Kong, only 10 percent and 19 percent, respectively, were satisfied with the service at luxury retailers in China. The top two complaints were limited product selection and staff with limited knowledge of the products.
To Chinese consumers, a high price tag does not necessarily equal luxury anymore. Chinese luxury shoppers are more sophisticated and are looking for quality and exclusivity in their luxury goods.
“Regarding product selection complaints, this is a sign of the growing sophistication of the Chinese luxury consumer. Nowadays it is not about having the same product as everyone else, but rather having someone that is unique,” said Ipsos executive director Simon Tye. He added, “There is continued strong demand for unique and customized products that retain the heritage of the brand.”
The study noted that Hong Kong shoppers are particularly attracted to innovative products and design. “They seek new perspective from brands and are ready to embrace new offers that incorporate strong creative and empathetic services,” Tye said.
In regard to luxury retail staff complaints, the study points to the limited talent pool in China as one factor, but companies are taking steps to better train and motivate their employees.
In fact, earlier this year, international luxury conglomerate Kering introduced an executive talent program in China to address the lack of properly experienced employees in China from the top down.
“While Chinese consumers do carry out more and more of their luxury shopping outside of China, it is important to remember that China remains their first point of contact with international luxury brands,” Mr. Tye said.
Travel Spending Will Continue to Grow
Last year, Chinese tourists spent $129 billion on foreign travel, and that is expected to grow this year. The survey found that 50 percent of respondents from mainland China planned to spend more on travel this year, whereas 38 percent of those in Hong Kong plan to spend more on travel in the coming year.
“The shift is being noticed in that the consumers are looking more for experiences and unique products, thus travel gives them that opportunity. Travel has become a luxury in itself but more importantly it is an opportunity to sample various luxuries abroad,” said Ruder Finn Shanghai VP Anne Geronimi.
“Overall, although there may have been a slight slowdown in the luxury market in China in 2015, its long term momentum is unchanged, and more growth should be expected in the coming years,” added Geronimi.
Duty Free Shopping Unconfined by Airports
The rise in Chinese outbound travel has also led to a surge in the duty free shopping market. According to the survey, 53 percent of mainland Chinese shopped at a duty free store this year.
Traditionally, duty free stores are located in airports, but Hong Kong-based DFS Group plans to open a T Galleria boutique in a 13th century Venetian building to mark its entrance into the European market. If it is a success, plan to see more duty free stores outside of airports and transportation hubs.
E-commerce will become a bigger piece of the retail market
More than half of both mainland Chinese and Hong Kong shoppers said they feel more confident buying luxury goods online, but are still concerned with service, trust, and credibility when it comes to online shopping. However, 81 percent of those from Hong Kong and 78 percent of mainland Chinese said they prefer to visit a physical store before making a purchase online.
“E-commerce is both the next big opportunity and challenge for luxury brands,” said Ruder Finn Shanghai senior vice president Gao Ming. “To fully tap the potential of the luxury online market, brands need to consider two options: either creating their own platforms or riding on existing ones,” he added. “The solution lies in striking the right balance between online product offering, customer experience, and customer service, both online and offline. Focusing on optimizing the online customer experience is more crucial to success than ever before.”
E-commerce has taken off particularly quickly in Hong Kong where less government oversight and greater exposure to western brands through travel, along with the ability to access Google, Facebook, and other western websites, make it much easier for Hong Kong residents than their mainland Chinese counterparts to buy the western goods for which they are looking.
One big obstacle for international luxury brands looking to sell goods to mainland Chinese online shoppers is the country’s firewall, which can cause serious issues for luxury brands. Unless an international brand has a server within China, websites can take up to 20 seconds to load, or can be blocked for other issues, which may be too big of a hurdle for some customers.
image source: markus bollingmo