According to Bain & Company's annual research on the luxury sector, Chinese consumers are spending more on luxury products at home, even if they can't readily travel overseas owing to pandemic-related restrictions.
According to Bain projections issued 20th January, personal luxury goods sales in mainland China increased by 36% to 471 billion yuan ($73.59 billion) in 2021 from the previous year. That's more than double the 234 billion yuan spent on luxury items on the mainland before the outbreak in 2019.
Despite a drop in overall Chinese retail sales since the pandemic began in 2020, luxury goods sales have increased. The figures also show how China's home market is becoming a more attractive destination for international brands.
Mainland According to Bain, China's share of the global luxury market increased to almost 21% in 2021, up from around 20% in 2020.
"We expect this rise to continue, putting the country on course to become the world's largest luxury goods market by 2025," according to the research.
"China's consumer storey remains the finest in the world," the Bain experts said, referring to the country's burgeoning middle class. "The average rise in discretionary income continues to outpace inflation."
The fastest-growing sector was leather products, which rose by over 60%, according to the survey, followed by fashion and lifestyle, which climbed by around 40%.
In China, There Are More Duty-Free Shops.
The rise of duty-free businesses in Hainan, a southern Chinese island province, is a major driver for the local luxury industry. New government policies have lowered taxes and adopted other business-friendly measures in the previous two years, with the goal of transforming the region into a free-trade port and international consumption centre.
Luxury brands were already shifting to Hainan and other parts of mainland China from Hong Kong because too violent protests in the semi-autonomous province, even before pandemic-induced travel restrictions prevented buyers from travelling abroad.
According to Bain, sales of luxury items at Hainan's duty-free retailers increased by 85 percent year on year in 2021, hitting 60 billion yuan, after increasing by 122 percent year on year in 2020. Last year, the outlets accounted for 13% of mainland China's personal luxury goods market, up from 9% in 2020 and 6% in previous years.
The greatest driver of Hainan's duty-free success, according to Bain experts, was steep discounts that went beyond tax savings. According to the survey, the "large price difference" between the official listed price and the price in Hainan slowed growth in other sales channels, at least for some products.
With the establishment of new duty-free outlets in major Chinese cities including Beijing, Tianjin, and Shanghai, analysts at The Economist Intelligence Unit predict China's domestic duty-free market will nearly double to 258 billion yuan between 2021 and 2025.
However, the analysts stated in a study released late last month that this is dependent on Chinese authorities loosening limitations on international travel and duty-free buying limits.
"The Hainan duty-free market continues to lag behind in terms of product varieties and price competitiveness, particularly for mid-to-high-end products," they stated. "In the meanwhile, Chinese shoppers may want to combine their buying with a trip abroad to immerse themselves in different cultures and situations."
How China's Luxury Spending In 2021 Compared To the Rest of the World
According to Bain projections, global spending on luxury goods reached 283 billion euros ($320.6 billion) in 2021, returning from a drop in 2020 to surpass 2019 levels of 281 billion euros in luxury sales.
According to the survey, Chinese consumers spent around 30 billion euros less on luxury items last year than they did in 2019.
According to the analysts, robust luxury goods sales growth slowed dramatically in the second half of last year, owing to reasons such as a high comparative base in 2020, intermittent Covid outbreaks, and tighter limitations on online influencers.
The slowing growth revealed that luxury wasn't immune to China's consumer spending dip in the last six months. In December, retail sales increased by a disappointing 1.7 percent year over year.
The domestic luxury market is expected to rise at a more modest pace in 2022, according to Bain experts.
The experts predicted that "sporadic localised Covid-19 outbreaks will certainly continue throughout the year." "We anticipate a commensurate drop in shopping mall traffic in the affected cities."
To prevent the spread of coronavirus outbreaks, local authorities have quickly shut down areas or limited travel. People may be discouraged from visiting places where they might come into touch with a confirmed case or face quarantine due to overlapping travel histories if they follow the guideline.
According to an exhaustive travel history given by municipal authorities, one such example in Beijing city visited luxury retail centre SKP last month.