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Deloitte-SECOO CIIE Blue Paper 2019 Analysis of Luxury Goods Consumption in China's Lower-Tier Cities Deloitte-SECOO CIIE Blue Paper 2019 | Preface

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Deloitte-SECOO CIIE Blue Paper 2019 Analysis of Luxury Goods Consumption in China's Lower-Tier Cities Deloitte-SECOO CIIE Blue Paper 2019 | Preface Deloitte-SECOO CIIE Blue Paper 2019 Analysis of Luxury Goods Consumption in China's Lower-tier Cities Deloitte-SECOO CIIE Blue Paper 2019 | Preface Preface After several years of downturns, areas, with consumption being No. e-commerce platforms and social global luxury goods industry has 1 driving force of economic growth platforms, the digital transformation gradually trended upwards since 2017. for five consecutive years. The luxury of luxury goods primarily shows at In recent years, China has played a goods market expands rapidly thanks the enterprise level. In other words, leading role in the growth of global to favourable government policies, the through digital technology, businesses luxury goods market. In 2018, China unleashed consumption potential in should continue to transform and spent $145.7 billion on luxury goods, lower-tier cities and the application decide on end-to-end supply chain, accounting for a whopping 42% of the and promotion of new technologies. In product supply, portfolio structure total global luxury goods market which 2018, online consumption growth rate and customer delivery logistics and to reached about $347 billion. China's of luxury goods in China reached 37%, introduce new customer experience, 2018 spending increased 7% over the accounting for nearly 14% of the total process and system based on new previous year. domestic market. infrastructure that integrates digital technology. As personal income growth rate Luxury brands have scaled up to the exceeds the overall economic growth application stage from the initial digital Our research reveals main trends of rate in China, the income gap keeps transformation phase. In addition to luxury goods consumption in markets narrowing between urban and rural marketing strategy through online across China's lower-tier cities: Deloitte-SECOO CIIE Blue Paper 2019 | Preface • First-tier cities have the lion's share but • Rejuvenation, male consumers and mobile lower-tier cities catch up fast. In terms of the phone entertainment are the key buzzwords of market scale, luxury goods consumption in first- luxury goods markets across lower-tier cities. and second-tier cities accounts for half of the total As social media continues to showcase brands and market, accounting for 56% but third-tier cities consumer experience continues to be optimized and and below show a strong growth in spending innovated, luxury goods consumption is basking in and purchasing power. According to the online a trend of increasing rejuvenation. Data reveals that consumption data collected by Secoo over the past the number of male consumers has surpassed their year, third-tier cities and below swept the top 10 female counterparts in terms of online purchases spots in all three categories of annual purchase of luxury goods. More than 50% of consumers are frequency, the number of repeat consumers and between the age of 18 and 30. There is a significant three purchases or more. discrepancy in consumption characteristics and daily preferences between luxury goods consumers in lower-tier cities and those in first- and second-tier cities. Among the consumers in lower-tier cities, young males under the age of 30 account for a relatively high proportion that are more willing to pay for such products as men's clothing, men's shoes, 3C digital product and skin care product. Meanwhile, consumers in lower-tier cities have more leisure time for movies, group shopping, and mobile phone entertainment. For brands, what it takes to succeed in multiple dimensions. Through the toward online channels. Consumers lies in precision marketing through analysis of consumer profiles, the live in first- and second-tier cities, on the digitalized multiple touch points broadcasting platform will emerge contrary, have a relatively diverse and big data-refined customer to be the new battlefields for luxury array of choices, which requires profiles. With rapid growth of luxury brands to further develop young multiple touch points for consumption goods consumption in lower-tier customers and consumer groups process. Therefore, digitalized omni- cities, differentiated strategies for in the lower-tier cities. On the other channels are better equipped to different-tier markets are imperative. hand, as consumers in lower-tier observe purchasing behaviour through On the one hand, big data tools and cities are limited in opportunities to horizontal multiple touch points technologies help luxury brands purchase luxury goods through offline and vertical consumption process target customers more accurately and channels, they are inclined to gravitate coverage, thus achieving precise better refine the customer profiles luxury goods sales and consumer management. 1 造有道 智万物 |一、技术趋势 2 Deloitte-SECOO CIIE Blue Paper 2019 | Chapter 1: The rise of markets across lower-tier cities Chapter 1: The rise of markets across lower-tier cities Luxury consumption market is growing rapidly in China In 2017, China purchased one third of global luxury goods, making it the largest market for luxury goods. In 2018, consumption of luxury goods in China increased 7 percent to reach USD145.7 billion, accounting for 42% of the global luxury goods market of about USD347 billion. Moreover, it is estimated that by 2025, Chinese consumers will purchase more than half of all luxury goods in the world. Figure1：Luxury goods sales are growing faster in China than elsewhere 60.00% 40.00% 20.00% 0.00% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 -20.00% Global Asia Pacific North America Western Europe China Data source: Open Data, Deloitte Research Figure2：China's proportion of global luxury goods Meanwhile, online sales of luxury goods are also growing consumption (2018) rapidly in China. In 2018, online sales in China reached USD5.3 billion, an increase of about 37% over 2017 and accounted for nearly 14% of the domestic luxury goods market. In 2019, 6% luxury goods e-commerce is experiencing explosive growth 8% as the government continues to introduce various incentive policies for luxury goods e-commerce. In 2019, online sales of 8% China luxury goods are expected to exceed USD7.3 billion in China. 42% US Europe The rapid growth in China's luxury goods market is largely 16% Japan driven by new policies promoting the flow of luxury goods Other Asian consumption back to China home market , by the emergence countries Rest of the of new consumer groups and the continued rise in purchasing 20% world power in 4th- and 5th-tier cities, and by new technology enhancing user experience and precision marketing. Data source: Open Data, Deloitte Research 3 Deloitte-SECOO CIIE Blue Paper 2019 | Chapter 1: The rise of markets across lower-tier cities 1.1 Policy changes promote flow of been introduced so that purchases 2019, import and export tariff rates luxury goods consumption back to of foreign luxury goods consumption were adjusted, with zero tariffs on China will take place inside China as much goods from Hong Kong and Macao. Foreign countries still serve as the as possible to help promote domestic main markets for luxury goods economic growth. Since 2015, the At the same time, luxury brands have purchased by Chinese consumers. State Council has cut tariffs five purposefully implemented more In 2018, luxury goods purchases by times in succession. In addition, the flexible sales policies and pricing Chinese consumers outside China implementation of the Electronic strategies in the Chinese Mainland, grew 64%. This is because average Commerce Law places restrictions on further squeezing the space of prices of products are higher in the purchasing agents – operators who operation for purchasing agents. As Chinese Mainland, 45% higher than in make purchases overseas on behalf of a result, luxury goods consumption Hong Kong, 50% more than in the US customers inside China - and directs has shown signs of flowing back and 70% higher than in France, mostly consumption to flow back to China. to China. In addition, luxury goods due to high tariffs on imported goods. In July 2018, the Chinese government purchases made inside China have cut import tariffs, which dealt a blow gained momentum as luxury goods In recent years, tariff policies designed to the shady channels frequently purchases made overseas have to attract luxury goods imports have employed by purchasing agents. In waned. Figure3：Policies promoting the flow of luxury goods consumption back to China Date Policy June 2015 Cut import tariff rates on commodities including some clothing, shoes and skin care products. Cut import tariffs on suits, fur/leather garments, short boots, sports shoes, diapers and skin care product. January 2016 Expanded commodity tariff cuts. Cut import tariffs through a provisional rate on goods with high tariff rates and a flexible demand including bags, clothing, scarves, blankets, vacuum cups and sunglasses. January 2017 Adjusted tariffs on jewelry products, with the tariff cut on black pearls to zero, the largest reduction. Adjusted the tariff on musical instruments to 1%. Tariffs on skin care products and men's and women's clothing remained unchanged. December Adjusted import tariffs on some consumer goods. Cut the average tariff on 187 items from 17.3% to 7.7%. 2017 Reduced tariffs on cosmetics including lipstick, eye shadow and perfume from 10% to 5%. Cut tariffs on luggage products from 20% to 10%, clothing from 14-25% to 5%-10%, and silk and scarf products from 14% to 5%. July 2018 The average tariff cuts on commodities rose to 55.9%. Cut average tariffs on clothing, shoes, hats, kitchen products and fitness product from 15.9% to 7.1%. Reduced average tariffs on cosmetics including skin care and hairdressing products, as well some medical and health care products, from 8.4% to 2.9%. January 2019 According to the Electronic Commerce Law, purchasing agents or individuals must have business licenses in the country of purchase and in China and pay tariffs in both places.
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