Are Chinese consumers just not that into shopping anymore?
“The market is not growing as quickly as it used to, and it is definitely shifting,” said James Button, a senior manager with the Shanghai-based consultancy Smith Street Solutions. “For very high-end products, I would not be surprised if sales are hurt,” he said.
Not to worry, Chinese consumers are still very willing to spend, but now they rather spend on luxury experiences, which they find more satisfying than simply adding to their closets.
Shaun Rein, managing director of China Market Research, thinks that Xi Jinping’s anti-grafting campaign has made its mark on the Chinese luxury consumer base as a whole – not just government officials. “The bigger hit is coming from Chinese consumers not wanting to buy luxury products anymore,” Rein tells WWD. “Pollution is so bad, they are looking for experiential [consumption], traveling, getting out, clean air. A lot of women are buying cheaper accessories and spending the rest of their money on a trip.”
While Button at Smith Street believes that consumer confidence is still strong, consumers are now much more disciplined about how they spend and what they buy. “When talking about winners and losers, for most brands, it is a function of how you react to it. For most of the traditional luxury players, it is how do you reset your business for this environment? That has been happening for a while and most of them have gotten the message, but the new regulations reinforce that this is something they must be doing,” he said.
And while Chinese shoppers may be trading Hermes clutches for plane tickets to escape smog and the pernicious political climate, that doesn’t mean they’ve stopped buying luxury goods altogether. Oftentimes, they are buying them while abroad. Particularly this holiday season, as the corruption crusade continues at home, Chinese consumers will be wary of spending for their New Year celebrations. Rein said, “The crackdown is far more serious than analysts projected and will continue to impact luxury gift-giving. The crackdown on corruption is so serious that officials can no longer help, so people are giving smaller gifts, something cheaper.”
Button agreed, “They can’t justify spending that much on something the way they could before. But Chinese New Year is one of the top times to travel abroad. The spending may not be in China.” Last month Fortune Character Institute projected high-net-worth Chinese consumers, who are the core buyers of luxury products, will increasingly purchase these goods overseas. If this proves true, it is likely to have a ripple effect throughout the economy.
The study said that, in the next three to five years, the escape of the core consumers will negatively impact the consumption enthusiasm of marginal and potential consumers, which will ultimately hurt the luxury brands. Bain & Co has projected that China’s luxury market will reach $21 billion in 2013, an increase of just 2.5 percent this year and down from the 20 percent in 2012.
image credit: herry lawford