The personal luxury goods market exploded in 2022, reaching an all-time high of $383 billion, up 26% from 2019 and 22% from 2021 at current exchange rates, according to Bain-Altagamma Luxury Study.
Much of the growth came from its two largest markets, the Americas ($123 billion and more than 25%) and Europe ($102 billion, up 27%).
However, China, the main driver of growth in the luxury market over the past decade, has remained on the sidelines. In 2022, sales of personal luxury goods fell 1% to $64 billion. Government shutdowns continue to plague China’s consumer market, and its share of the global luxury market has fallen from 21% in 2021 to 17% in 2022.
Yet Bain remains confident that by 2030, China will lead the world, accounting for more than 25% of the global personal luxury market, while the Americas decline from 32% in 2022 to around 25% and the Europe now loses 27%. some split points too.
In the short term, luxury brands are counting on the Chinese New Year 2023 to turn the tide. The celebrations began on Saturday January 22nd and will culminate with the Lantern Festival on Sunday February 5th.
Effectively equivalent to the December holiday celebrations in the West, brands are hoping this will trigger a huge increase in spending that has been kept under wraps for the past three years.
But when China finally emerges from its pandemic-enforced shutdown, luxury brands may face a very different market than they have experienced before.
The challenge is discussed in the Bain report and reinforced by the findings of a new Deloitte study: a growing taste for local luxury brands that reflect Chinese cultural traditions and growing national pride. It’s called Guochao.
Rise of Guochao
Guochao stands for “national wave” and Bloomberg reports that it’s a trend that young Chinese consumers, especially the 270 million Gen Z cohort, are quickly embracing.
“Meeting the demands of young, nationalistic and demanding Gen Z will require an immense shift in the way Western companies – which have bet decades of demand for foreign goods will last – do business in China and pose an unprecedented challenge to their domination of the market,” he reports, titling that this generation has the power to “make or break Western brands”.
Observing that Gen Z is the first true consumer generation in China, trend forecaster Zak Dychtwald of Young China Group said, “Like baby boomers in the United States, China’s Gen Z is redefining the consumption economy of the country and will continue to do so in every country. stage of life they are going through.
To date, they, along with Millennials born before them, have shown the greatest appetite for Western luxury brands, but that could change as local Chinese brands rise up to challenge the perception of a superior quality and craftsmanship found in luxury imports.
“Made in China” has no stigma there like it may have in other parts of the world. It’s more of a badge of honor, and more and more local brands are developing equally high-quality products specifically designed for Chinese consumers.
Jing Daily contributor Arnold Ma warns that international brands have ‘avoided the guochao’ for fear of repercussions, as Nike experienced after exposing the use of cotton from the Xinjiang region for human rights abuses. ‘male.
This opened the door for local sportswear brands Anta Sports Products and Li Ning Co. to lean into Xinjiang cotton and grow their market share in 2021, reaching nearly 25% combined (16.2% Anta and 8.2% Li Ning) and rivaling Nike at 25.2%. in 2021.
In another sign of weakening import demand, sales of foreign-branded sneakers fell 24% and imported sportswear fell 33%, according to Bloomberg’s analysis of the Top 100 Brands on Tmall.
While sneakers and sportswear aren’t necessarily luxury, they could be a leading indicator of changes on the horizon for Western luxury brands.
Two Chinese companies enter the world’s top 10 luxury
In a just-completed global analysis of Deloitte’s 100 largest luxury goods companies for 2021, China is now home to 11 of the top luxury companies, including new entrants Lanvin Group and ICCF Group. . It’s shy 23 Italian companies and 14 American, but ahead of France and Switzerland with eight each.
What’s even more impressive is that two Chinese companies – Chow Tai Fook Jewelery Group and China National Gold Group – now rank in the top 10 worldwide, and Loa Feng Ziang Co., at number 12, is a short distance from the top 10. Of even greater note, Chow Tai Fook Jewelery had the strongest year-over-year growth among the top 100 companies, at 94%.
While China’s top three companies compete in the jewelry segment, newcomers Lanvin and ICCF Group are participating in the apparel and footwear space.
“The emergence of two Chinese luxury brands in the top 10 portends an evolution in the idea of luxury,” said Karla Martin, co-head of fashion and luxury at Deloitte. “Traditionally, Chinese luxury consumers consumed in traditional luxury houses in France and Italy, but Chinese indigenous brands are starting to spread not only in jewelry, but also in beauty and fashion.”
Sensing the tendency to favor Chinese designers, she considers that the loss of Western brands is a gain for China.
“We are talking about billions of consumers who are increasingly affluent and have a deep desire for luxury goods. But historically they have sought these products outside of their country,” she said and continued, “But with a good local supply of designers coming from China specific to their cultural aesthetic and with a perfect fit, we could see billions of dollars sucked from luxury brands with a historically European tradition.
Accumulate cultural capital
Luxury brands stand out as huge creators of value, but today, creating value the traditional way, through exceptional quality, craftsmanship and service, is the price of entry, or what Daniel Langer, CEO of consulting firm Equity and executive professor at Pepperdine University, calls simple “hygiene factors.”
“It’s not a significant value driver anymore,” he said. “The new know-how of luxury is to create a reality in which customers feel highly desirable because the brand can create cultural capital for them. Building cultural capital means being able to access, process, and operationalize real-time information about trends, hot topics, and customer sentiment. And requires cultural empathy on a global scale.
This is where local Chinese brands and designers have an advantage. They are more than participants in the zeitgeist of the guochao, but creators of it, not outside observers. As such, they are uniquely positioned to create cultural capital for the rising tide of guochao-fueled consumers in a way that no Western brand can.
“Cultural capital is earned every day and its importance becomes critical to success. The ability to be a cultural actor, the ability to influence and inspire audiences, becomes the engine of value creation in a digital native world. It’s a completely different skill set than before and very few brands have mastered it,” he concludes.