McKinsey Greater China’s Apparel, Fashion and Luxury Group China Luxury Report 2019 How young Chinese consumers are reshaping global luxury
April 2019 Introduction
This is the story of how a new At the high end, negative impacts Research for the 2019 McKinsey China generation of Chinese consumers are are evident in Hong Kong, where Luxury Report shows that the majority powering the global luxury market, and jewelry sales and imports of Swiss of these young consumers are fresh to the double-edged sword they present watches have slowed, but even in these market, presenting both a tantalizing to the world’s leading luxury brands. categories demand remains relatively opportunity and an implicit imperative strong on the mainland. for brands to stay current, or risk losing Set to be the engine of global out to more digitally savvy rivals. spending on high-end shoes, bags, Indeed, the luxury segment remains fashion, jewelry, and watches, China’s robust, amid a continuation of a trend What’s more, while some fashion affluent upper-middle class presents in premiumization that has seen sales houses excel at various aspects of an enticing prospect for the world’s of premium cars and premium beer, online marketing and commerce, even designer brands. as well as prestige beauty products, the most popular luxury brands have yet outperform the wider market. to establish a comprehensive presence Imbued with a confidence to spend across the digital ecosystem. underpinned by a lifetime watching new Young Chinese consumers view skyscrapers rise in tandem with their ownership and affiliation with designer Consequently, opportunity abounds as family incomes, these consumers are brands as a form of social capital; not brands seek to engage the attention of eager to tap luxury as a means of social just something to wear, but a lifestyle consumers in the world’s most lucrative advancement and self-differentiation. choice that marks them as part of a and fastest-growing luxury market. distinct and exclusive community. This is so even in the context of the sharpest slowdown in China’s That community is constantly being economy since the financial crisis, refreshed via a glittering stream of and with it a slide in demand for online content, keeping pace with which discretionary items such as new cars demands consumers are “always on,” and mobile phones. immersed and engaged in a digital world that is nothing short of a way of life.
2 China Luxury Report 2019 China Luxury Report 2019 3 China is winning half the luxury world
Key takeaway 1: That growth will be primarily driven by This is in keeping with the notion that an explosion of upper-middle-class luxury in China is a winner-takes-all Chinese consumers households, the population of which will market, a tendency best reflected are set to contribute rise at a compound annual growth rate in the composition of the country’s almost two-thirds of 28 percent from 2018 to 2025, taking fashion market. As explored in our the total number of people in China State of Fashion 2019 report, the vast of global growth in earning between $2,600 and $3,900 majority of fashion-industry profit in luxury spending per month per household to 350 million. China is secured by the top 20 percent China’s affluent class (households of companies, creating a polarized China delivered more than half the earning above $3,900 per month) will market dominated by a subset of global growth in luxury spending almost triple to 65 million people during “super winners.” between 2012–18, and is expected the same time period. The same can be said for luxury, to deliver 65 percent of the world’s The majority of them, about 70 percent placing the onus on brands to stay additional spending heading into 2025, in fact, will be doing their luxury at or near the top of the market or according to research based on spending overseas, a result of an risk sliding into irrelevancy. This UnionPay transaction data for the increasing affinity for outbound travel1 demands an aggressive yet flexible 2019 McKinsey China Luxury Report. and the price differential resulting approach, particularly as we expect In 2018, Chinese consumers at home from China’s import tax regime and macroeconomic headwinds will and abroad spent 770 billion RMB brands’ own pricing policies. However, eventually take a toll on wealthy ($115 billion) on luxury items—equivalent that ratio may shift in favor of domestic Chinese consumers, or at least the to a third of the global spend—with each spending as a result of moves to cut value of their assets. luxury-consuming household spending luxury import taxes. an average of 80,000 RMB per year. While some luxury brands have posted Their outlay is set to almost double to disappointing results due to weak China 1.2 trillion RMB by 2025, when demand, the likes of LVMH, the world’s 40 percent of the world’s spending largest luxury group, and Switzerland’s on luxury goods will be conducted by Richemont, owner of Cartier, reported Chinese consumers (Exhibit 1). their China sales accelerated in the final quarter of last year.
1 Our Chinese tourists: Dispelling the myths report suggests Chinese travelers will make 160 million outbound trips each year by 2020, with spending tipped to grow 6.1 percent over the next couple of years.
4 China Luxury Report 2019 Exhibit 1 China is winning half of the luxury world.
Global personal luxury goods1 market evolution 2020–25 compound RMB2 billion annual growth rate
3,117
2,609 2,406
China luxury is 2% 1,779 770 billion RMB today and will double to
1.2 trillion RMB by Other worldwide 2025, delivering 65% of consumers 2018–25 global growth 1,227 921 (40%) 770 6% Chinese (35%) 334 (32%) consumers3 (19%) 2012 2018 2020 2025
McKinsey & Company 1 1Ready to wear, accessories, watches and jewelry, and beauty. 2Fixed exchange rate of €1 = 7.3 RMB. 3Both domestic and overseas spending. SOURCE: China Luxury Report 2019; China Luxury Report 2017
China Luxury Report 2019 5 China’s young luxury consumers
Key takeaway 2: Now, at the peak of their career and The post-’90s consumers are the earnings, and with a passport likely vanguard of China’s urban middle- The post-’80s/’90s stamped with trips to the world’s most class, a dynamic and digitally generations, many glamorous cities, they are spending engrossed cohort that as the “single new to luxury, power to show off their success, and to child generation” are the recipients of demonstrate individualism in the world’s an outsize level of familial support. Two- the Chinese market most populous urban landscape. thirds told us their parents support their luxury spend, with McKinsey Global Following in the footsteps of their China’s post-’80s (born in the 1980s) Institute modeling suggesting that slightly older peers, China’s post-’90s generation, who broadly map to upper-middle-class Chinese families consumers, better known as Generation Y, are the driving force of top up their post-’90s children’s bank Generation Z, are delivering the shot in the country’s luxury appetite. balance by at least 4,000 RMB per the arm China’s luxury market needed month, or half their personal income. Consisting of 10.2 million luxury to emerge from several years of This financial cushion has a large impact consumers, they accounted for more stagnant growth. than half the total spending on luxury by on these young consumers’ willingness Chinese consumers in 2018 (Exhibit 2). Enticed by luxury streetwear and to spend, and spend big, on luxury. other product lines targeted squarely Having grown up in step with China’s at their demographic, the post-’90s emergence as a global superpower, consumers spend 25,000 RMB a year they are the primary beneficiaries of the on luxury goods, already as much as economy’s rapid and unbroken growth, their parents—the post-’65s/’70s and spend an average of 41,000 RMB generation popularly referred to as per person each year on luxury. Generation X.
Post-80s are still the largest luxury spending group in terms ofExhibit both 2 consumer numbers and total spending Post-’80s consumers are still the largest luxury spending group in terms of both consumer numbers and total spending.
Total no. luxury consumers by generation Million, %
Post-’65s/’70s Post-’80s Post-’90s
2018 7.0 (29%) 10.2 (43%) 6.7 (28%) 23.9
Annual luxury spending by generation Billion RMB, %
2018 185 (22%) 415 (56%) 170 (23%) 770
Note: Figures may not sum to 100%, because of rounding. SOURCE: China Luxury Report 2019
6 China Luxury Report 2019 A whole new world 31 percent of post-’80s consumers, Instead of legacy reputations only made their first luxury purchase in established over hundreds of years in Research for the 2019 McKinsey the last year (Exhibit 3). Europe, these new luxury consumers China Luxury Report shows that are influenced more by what is China’s young consumers are new to Luxury is also a relative novelty for many happening right now, leaving ample luxury, and thus have a less nuanced of the post-’65s/’70s group—just under room for brands with the right strategy understanding of the heritage upon half bought their first designer item less to shape their tastes. which the market traditionally trades. than three years ago. Nine out of 10 of the youngest generation and more than Only 13 percent of post-’80s/’90s two-thirds of post-’80s consumers, luxury spenders said they grew up in a also only started their engagement with family familiar with the finer things in luxury within the last three years. life, while half of post-’90s, and
ExhibitYoung 3 consumers are new to luxury: Half of post-90s consumersYoung consumers only are new started to luxury: last Half yearof post-’90s consumers only started last year.
Started buying luxury Started buying luxury Started buying luxury last year 2–3 years ago >3 years ago
8% 50% 29% 31% 52% 14%
Post-’65s Post-’90s Post-’80s & ’70s
42% 40% 34%
Only 13% of post-’80s and ’90s surveyed grew up with luxury
SOURCE: China Luxury Report 2019
China Luxury Report 2019 7 Section 1: What do they want?
Key takeaway 3: Buying luxury is also a way to convey Indeed, the concept of a niche brand and enjoy a shared social experience has multiple meanings across luxury Promoting iconic and value system—a lifestyle and segments, from one that exhibits brand-product community that lives and breathes unique design to those that are niche combinations is key luxury, online and in the flesh. in the sense of being rarely seen on the street, or simply not available in Young Chinese consumers’ mainland China. Young Chinese consumers told us consumption of media, and the luxury luxury helps them feel distinct from lifestyle it portrays, is consequently In any case, China’s luxury market the people with whom they share heavily social and trend dependent— has yet to develop the widespread their cities. a desire to be seen or snapped in the sophistication necessary to sustain They see luxury as a form of social latest styles drives consumption, demand for truly niche or boutique capital that helps mark them apart, and and with it a need for brands to brands, as has been the case in achieve personal and social goals. constantly update their styles or the West. leverage creative marketing to create Brand remains king when it comes to That sentiment intensifies towards the the illusion of newness. younger end of the spectrum, with informing taste across all our surveyed well over half the sample, and almost More than three-quarters of young generations, but is relatively less 70 percent of post-’90s consumers, Chinese consumers are thus most important for younger consumers. telling us they buy luxury to “feel interested in buying iconic styles that For example, brand was the top reason different rather than fit in with society.” are easily recognizable, with for the last luxury purchase among the trend most prevalent among the 68 percent of the post-’90s consumers, post-’65s/’70s consumers. compared with 94 percent of the post-’65s/’70s consumers (Exhibit 4).
Exhibit 4 consumersBrand is important, but relatively less so among young consumers.
Top reason for last luxury purchase by generation % of respondents who selected reason as no. 1 contributing factor
Brand is still the most important factor but relatively less so vs the older generation • Social influence accelerates Brand 68 72 sophistication: consumers start to appreciate more nuanced 94 elements such as design, fabric, and manufacturing Design/style process 11 Fabric/material 9 3 • Commanding knowledge 6 1 Production process 8 beyond simply brand is another 8 1 form of social capital to be Price 8 7 4 2 demonstrated among peers Post-’90s Post-’80s Post-’65s/’70s
Participants ranked these 5 reasons as a contributing factor for their most recent purchase
Note: Figures may not sum to 100%, because of rounding. SOURCE: China Luxury Report 2019
McKinsey & Company 4 8 China Luxury Report 2019 Brand loyalty tends to be higher among an appreciation for craft; younger In fact, the post-’65s/’70s consumers the older generation, some of whom consumers in particular tend told us they have no interest in buying are likely to be VIPs for various brands to value design, fabric, and the Chinese luxury brands, but there are as a result of several years sharing production process. signs that such negative perceptions their insights with peers as key opinion about domestic players are beginning We found young consumers prefer leaders (KOLs). to fade: one in ten post-’90s consumers foreign luxury brands, particularly those said they would opt for a high-end Having said that, the overwhelmingly from France and Italy, closely followed Chinese brand, and this likely will social nature of luxury consumption by Great Britain, with Japanese and increase in the near future as Chinese in China acts as a catalyst for American labels also more appealing brands gain greater prominence. consumers to learn about and share than homegrown luxury alternatives.
Exhibit 5 The origin of North American brands is typically not well known.
Perceived country of origin vs actual country of origin
European brands American & Canadian brands
Chanel Burberry Louis Vuitton Canada Goose Brooks Brothers Theory
USA 40% Canada 45% USA 45%
Great 76% France 73% Britain France 90% Perceived brand Europe 30% Europe 40% origin Europe 33%
Others 27% Others 25% Others 23% Others 20% Others 22% Others 10%
Actual brand origin
Note: Figures may not sum to 100%, because of rounding. SOURCE: China Luxury Report 2019
China Luxury Report 2019 9 For the time being, it is European Online commentators often bestow Nicknames are most often coined by brands that command the greatest nicknames on these products, the local market, and are based on a recognition, and which are most helping circumvent problems less product’s appearance, transliterations strongly desired by consumers. sophisticated consumers might and translations, or pop culture Less than half of respondents were have with pronouncing English and references. For example, Prada’s able to correctly name the country French names, and making it easier to Saffiano handbag earned the nickname of origin for selected American and share and discuss a product on social “killer bag” after actor Lea Seydoux’s Canadian brands (Exhibit 5). media, or to talk about in person with assassin character carried it with her sales staff. in the movie Mission Impossible: Intriguingly, our research also suggests young consumers are loyal Ghost Protocol. not to brands per se, but to iconic brand-product combinations.
Exhibit 6 Trying new brands is a consistent theme across generations.
Brand basket and loyalty of consumers % of respondents purchased no. of brands and whether they buy outside of preferred brands
Post-’90s Post-’80s
Buys exclusively from 29 54 <5 preferred brands Loyal
Buys exclusively from 19 16 >5 preferred brands
Occasionally buys Experimental outside of preferred 52 30 brands
SOURCE: China Luxury Report 2019
Willingness to try new brands is a The result is a whirlwind of content apparel and accessories in 2017, which consistent theme across generations, designed to elevate each new product sold out in three days in Beijing, rather but it is the post-’90s consumers who to the iconic, must-have status of, say, than the originally intended two weeks. are committed to the widest basket, the Birkin Bag. Brands are also teaming up with and at the same time most prepared Focus on product in addition to brand is KOLs to help stoke excitement for to venture outside their comfort zone enabled by consumers’ high exposure product launches, often resulting (Exhibit 6). to social media. This allows marketers in sold-out product lines or large The desire to create just the right mix to tailor video, images, and other upswings in a brand’s social-media of incentive for young consumers to content purely to product. followings. For example, in 2017, switch brands necessitates that luxury Burberry partnered with top fashion The trend finds its apotheosis in cross- players constantly renew and refresh KOL Mr. Bags to promote a special brand product collaborations, for their product lines, or at least push edition exclusively launched via example LV and Supreme partnering marketing that sustains an illusion WeChat, which sold out in less than to release a series of limited-edition of newness. ten minutes.
10 China Luxury Report 2019 China Luxury Report 2019 11 Section 2: Marketing and engagement
Key takeaway 4: All of the 1,000 respondents we At every touchpoint, from e-commerce surveyed consult a mix of online and to in-store, and of course through social Everything is media, offline sources during the three to five media, consumers are seeking to pick social is everywhere hours per week they spend absorbing up information about the latest luxury information on luxury and fashion, products, the celebrities who promote Being relatively new to luxury, with every single one saying they were them, and the lifestyles they embody. Chinese consumers are constantly exposed to digital influence at some Only traditional ads fail to command the tapping various forms of content as point in their customer journey avid attention of consumers, according they strive to improve their awareness (Exhibit 7). to our research (Exhibit 8). of the market.
Exhibit 7 offlineAll Chinese touchpoints luxury consumers are influenced by both online and offline touchpoints. Information and channel preference of Chinese luxury consumers Sources consulted and channel of last purchase experience
Purchase 8% online
All respondents have consulted both online and offline sources at least once per week
Both offline 100% and online 92% Purchase ~16 offline average number of information sources on luxury accessed regularly per consumer
~3–5 hours spent on luxury and fashion information per week Gather Purchase information products
SOURCE: China Luxury Report 2019
12 China Luxury Report 2019 Exhibit 8 All channels except for traditional ads command high engagement. How do you get information about new luxury brands? % of respondents
Word of mouth 96
Earned Key opinion leaders1 94
Celebrity/sponsorship 87
Digital ads 84
Paid Media 82
Traditional ads 39
E-commerce1 96 Official brand 99 Owned channels offline Official brand 87 channels online
1KOLs can be either paid or earned; Ecommerce can be either paid or owned. SOURCE: China Luxury Report 2019
Despite their affinity for digital most commonly accessed source of Post-’80s/’90s consumers rely discovery, in-person experiences in information on new luxury brands. significantly on the kind of online brand stores are the most impactful These channels include cross-border commentary that e-commerce sites when it comes to making a purchase commerce offerings, commonly provide, with 54 percent telling us decision for nine out of ten young referred to as Daigou2. they consult peer reviews compared Chinese consumers (Exhibit 9). with just a third of post-’65s/’70s E-commerce, whether third-party or consumers. While all our respondents said they owned, plays a uniquely important leverage brands’ official channels role in gathering information. Consumer-to-consumer platforms for information, paid and earned Consumers use e-commerce platforms like XiaoHongShu (RED) also allow avenues offer a means for brands to to source facts about products, as China’s young luxury acolytes to share differentiate, particularly those trying to well as read peer reviews and product newly accrued knowledge by posting expand their reach or alter their image. experiences, with 45 percent of unboxing experiences, buyer’s guides, respondents indicating it is a favored wearing occasions, and anecdotes. In keeping with their belief in luxury as consultation channel. social capital, word of mouth is the
2 Daigou (dye-go), or “to buy on behalf,” describes the practice of purchasing sought-after goods -- from high-end handbags to premium infant formula -- overseas to resell back home. Source: Bloomberg, https://www.bloomberg.com/news/articles/2019-01-28/what-s-daigou-and-what-s-it-to-gucci-and-beijing-quicktake.
China Luxury Report 2019 13 Exhibit 9 Among all engagement channels, the most impactful are in-person and in-store.
What are the most impactful sources of information that influence your purchase (top 3 mentions)? % of survey respondents 90 Besides offline experiences, digital channels are the most impactful sources
45
28 28
16 12 8 7 5
In-person E-commerce Official Word Key opinion Media Celebrity/ Digital ads Traditional experiences brand of mouth leaders sponsorship ads at brand online stores channels
SOURCE: China Luxury Report 2019
KOL Kingdom Mi caused a stir by appearing with the LV, for example, works closely with a bag on the WeChat channel of core group of brand ambassadors with Young Chinese luxury shoppers are Mr. Bags, another influential Chinese global reach such as Chinese-Canadian heavily influenced by KOLs. fashion blogger. star Kris Wu, but hires others on an ad Celebrities like Angelababy, Yang Mi, hoc basis according to the needs of High-profile local KOLs then took up and Tiffany Tang, as well as fashion individual events or product launches. the reins, serving to deconstruct global bloggers like Gogoboi, all play a major The brand also leverages partnerships high fashion into easily understandable role in raising awareness of new with KOLs like Mr. Bags, who managed chunks, before a long tail of products, as they command wider a Beijing pop-up store for a day, and approximately one million amateur followings than brand-owned channels Gogoboi, who ran the brand’s Weibo influencers localized the product for (Exhibit 10). account during the 2017 LV Fashion consumers all over the country. They also serve to contextualize Week, to help introduce products to the Successful brands consequently luxury products in daily life, making widest possible audience. employ a portfolio approach to them accessible to the new luxury KOL engagement: working with consumers that constitute the bulk of celebrities and influencers with varying the China market. degrees of star power, a trend that Tracking the media journey of Chanel’s has spurred the emergence of online Gabrielle bag shows how, following the platforms that assist brands with brand campaign launch, celebrity Yang finding suitable KOLs.
14 China Luxury Report 2019 Exhibit 10 Top celebrities and key opinion leaders (KOLs) have wider reach than brand-owned channels. Estimated number of active Weibo Estimated number of active WeChat followers followers
Celebrities KOLs Official brand channels
杨幂 Mini Yang 101,141,000 杨幂 Mini Yang 1,432,000 妖精边儿 杨颖 Angelababy 98,810,000 1,432,000 Yaojingbianer 唐嫣 Tiffany Tang 73,550,000 阿花花酱Ahhj 1,431,000 黎贝卡的异想世界 王俊凯 Karry Wang 71,880,000 1,429,000 Rebecca 蔡徐坤 August Cai 23,350,000 gogoboi 1,357,000 Celebrity and KOL gogoboi 9,297,000 Coach 1,267,000 influence particularly FashionModels 7,999,000 范冰冰 Fan Bingbing 860,000 pronounced in
阿花花酱 Ahhj 4,414,000 Gucci 772,000 “social 黎贝卡的异想世界 4,076,000 LV 712,000 Rebecca oriented” and interactive Coach 3,747,000 Burberry 600,000 channels LV 3,741,000 Dior 598,000
Dior 3,206,000 FashionModels 466,000
Gucci 1,573,000 唐嫣Tiffany Tang 262,000
Burberry 1,313,000 杨颖 Angelababy 245,000 妖精边儿 1,308,000 刘涛 Tamia Liu 106,000 Yaojingbianer
SOURCES: Press search, as of Nov 2018
While WeChat remains the foremost Moreover, pioneers are pushing into Successfully launching new products platform for branded media, it is also new mediums such as video-sharing thus requires that brands adopt an increasingly used to drive interactive app Douyin, also known as TikTok. omni-channel approach that drives a consumer engagement, both through American fashion brand Michael Kors high level of consumer engagement, official accounts and through mini- partnered with KOLs to create a demanding new creative campaigns on programs within the WeChat ecosystem series of catwalk videos in various city a regular basis. that host interactive digital games and streets, before challenging users to This flow of paid and earned media other experiences such as product follow suit via their Douyin accounts. coupled with multiple opportunities for trials, service reservations, consumer The campaign generated 200 million consumer engagement helps cement advice, and more. Other platforms views for the more than 30,000 a product’s iconic positioning in the like Baidu, Douyin and Alipay are now user-generated videos submitted. digital firmament. establishing their own mini-programs.
China Luxury Report 2019 15 Exhibit 11 Younger generations have a stronger preference for fashion and art events where they can rthighlight e ents their sophisticated ere t e tastes. can i li t t eir so isticated tastes
% of respondents attracted by more than Preferred events hosted by luxury brands 1 type of event hosted by luxury brands % of survey respondents
Post-’90s Post-’80s
Fashion 74 show 75 Post-’90s 86 Art 57 show 62
36 Cocktails 32 Post-’80s 82 Afternoon 22 tea 33
Culture or 20 brand lecture 24 Post-’65s/’70s 69 17 Party 14
SOURCE: China Luxury Report 2019
Young Chinese consumers are also For example, LV’s “Volez Voguez demanding more from luxury brands Voyagez” museum-quality exhibition in when it comes to hosting offline events Shanghai created a sense of exoticism (Exhibit 11). Fashion shows are the for consumers dreaming of an escape event of choice for three-quarters of from the depths of China’s winter, while post-’80s/’90s consumers, with a WeChat mini-program helped drive art-related gatherings also engagement by linking bookings to the commanding strong interest. event’s marketing campaign.
16 China Luxury Report 2019 China Luxury Report 2019 17 Section 3: Channel and sales
Key takeaway 5: For about half our sample of As for the post-’65s/’70s consumers, post-’80s/’90s consumers, this means they rely on staff who understand their While discovery is ensuring sales staff provide regular personal life, including their family digital, purchases updates on product information, situation, and their related emotional are influenced and but there is more to it than that. The needs. younger generation expect a more made in person personal service, down to staff who can help pick out accessories based on an In keeping with young Chinese intimate knowledge of the customer’s consumers’ susceptibility to in-store personality, as well as their previous influence, sales staff play a critical purchases or preferences. They also role in providing purchase advice and value staff who can make fashion shows suggestions, including in the form of or parties more accessible, and who WeChat messages (Exhibit 12). keep in touch, more as a friend than merely a salesperson.
Exhibit 12 In-store sales assistants play a critical influencing role, both through physical interaction and t ro WeChat messages. sical interaction and e at essa es What are the most impactful brand offline channels that influence your purchase (top 3 mentions)? % of survey respondents 49
35
21 20
12
4
Suggestions In-person WeChat messages In-store WeChat messages Multi-brand from in-store try-on from in-store sales display from brand store sales assistants assistants or store
SOURCE: China Luxury Report 2019
18 China Luxury Report 2019 Exhibit 13 Thanks to social-media engagement and cultivation, younger consumers make faster cons erspurchasing decisions. a e aster rc asin decisions
How long did you consider before making the purchase decision? % of consumers surveyed
Post-’80s/’90s Post-’65s/’70s of post-’80s/’90s make their decision in <1 week 57
31 27 25
15 13 10 8 7 5 2 1 1 Within 1 day 2–3 days 4–6 days 1–2 weeks 2–4 weeks 1–2 months > 2 months
compared to only
of post-’65s/’70s
SOURCE: China Luxury Report 2019
Immersion in luxury speeds up The post-’65s/’70s consumers take returned from their last shopping trip the decision-making process for a little longer to make up their minds, having done so, compared with just younger consumers (Exhibit 13). though the vast majority are still likely to 7 percent of the older group. decide what to buy within a fortnight. Half of the post-’80s/’90s consumers Young Chinese luxury consumers said they arrive in store with a clear Younger luxury consumers are also still conduct the vast majority of their understanding of what they want to more likely to switch to a different purchases offline, with half of them buy, as they already spend a lot of product of the same brand in-store, visiting a premium mall to do so. time researching in daily life; with respondents suggesting the lure of while 60 percent told us they took trying on new items can sometimes be less than a week to make their too much to resist. Just under a quarter purchase decision. of post-’80s/’90s consumers said they
China Luxury Report 2019 19 Exhibit 14 inOffline t e isnear still expected t re to be the preferred luxury sales channel in the near future. Breakdown of Chinese online luxury spending RMB billion
1,227 2018–25 compound annual growth rate
930
770
~88% of current online ~90% luxury market for Chinese consumers 92% Offline
~12% Online 8% ~10% 2018 2020 2025
SOURCE: China Luxury Report 2019
Looking ahead, offline channels will system that allows luxury consumers The experience of luxury shopping in continue to dominate luxury sales in in lower-tier cities to be served person is what keeps young Chinese the near future, offering a compound remotely, on WeChat or phone, by sales consumers coming back to offline annual growth rate of about assistants in higher-tier urban centers stores, with two-thirds of post-’90s 6 percent over the next several years who will notify them when new products consumers telling us the experience (Exhibit 14). arrive. Pop-up stores and improved can impact their purchase decision. online services will also play their part. Our research suggests that luxury A similar proportion suggested brands’ current store footprint captures Though top luxury brands have the experience helps improve their less than half of the country’s affluent largely saturated China’s top 15 cities, aesthetic sensibility, and 62 percent households—those earning over brands should exercise caution if agreed that luxury shopping is not just 300,000 RMB per year—indicating the considering expanding into the more about product, but high-quality service importance of developing a presence than 100 third-tier urban clusters as the and experience. that caters to the remainder. This might luxury consuming population becomes encompass travel retail, as well as a widely dispersed.
20 China Luxury Report 2019 Exhibit 15 Among offline channels, post-’90s consumers shop across different types of bricks-and-mortar de art entstores and no longer stores only focus on premium department stores. At what type of physical store did you make your last luxury purchase? % of survey respondents based on UnionPay data
Outlet 8 8 12 4
Duty-free store 20 14 23 Duty-free appeals to post-’90s given their preference for affordable luxury and because they Brand store 35 are most likely to travel 44 abroad
Premium department stores are especially appealing to consumers 66 still experimenting with brand preferences Premium 37 department store 30
Post-’90s Post-’80s Post-’65s/’70s
Note: Figures may not sum to 100%, because of rounding. SOURCE: China Luxury Report 2019
China’s young consumers shop across Post-’80s consumers are most a mix of brand stores, premium malls, inclined to frequent brand stores, duty-free shops, and other outlets, and post-’65s/’70s consumers most with post-’90s consumers drawn to partial to premium malls, which we the latter option due to a preference also found appealed to consumers still for affordable luxury and a tendency experimenting with brand preferences. to travel abroad in higher volumes than their peers (Exhibit 15).
China Luxury Report 2019 21 ersonali ation ser ice is o ered
Exhibit 16 Young consumers are more likely to make a purchase if great personalization service is offered.
Would this factor help you make a purchase at a store offline? % of post-’80s and post-’90s respondents saying “yes”
Intimate and Good sales service attitude and professional knowledge 35% personalized experience Dedicated sales guide for me 27%
Keep records on what I have bought and what I like 27%
Semi-personalized services like picking out accessories per my preference 27%
In-store Good in-store decoration 22% add-ons Premium dessert, champagne, or beverages 22%
Afternoon tea, happy hour, or leisure entertainment 22%
Distinctive shopping bag 21%
Spa or nail-beauty services 20%
Convenience On-site ordering support if out of storage 22%
Easy and free exchanges and returns 10%
SOURCE: China Luxury Report 2019
In keeping with their susceptibility to We also found that most Chinese Indeed, there is a sizable opportunity purchase suggestions from in-store consumers are only likely to be tempted to tap affluent online consumers in staff, post-’80s/’90s consumers are away from domestic physical stores to China’s smaller cities, with almost most influenced to purchase offline overseas or Daigou alternatives for a half of consumers in lower tier cities by a more personalized experience price differential greater than 500 RMB suggesting they would be willing to (Exhibit 16). per item, but were almost universally shop online in the next year, amenable to doing so for a discount of compared with less than a quarter of They told us that knowledgeable staff 1,000 RMB or more. those in larger cities, who are mainly with a helpful attitude are the most searching for niche brands or likely to influence them to make a hard-to-find products. purchase in store, ideally in the form of Online opportunity a dedicated sales guide who can pick We forecast online luxury sales to grow Among post-’80s consumers, just out accessories in line with their tastes. by up to three times the current market 1 percent told us they made their size, to account for an eighth of China’s last purchase online, compared with Furthermore, they are not averse 1.2 trillion RMB luxury market by 2025. 29 percent who said they would be to taking the purchasing plunge Online luxury sales in China lag other prepared to tap digital luxury commerce after consuming premium desserts, categories by a large margin, with just in the next year. champagne or other beverages, or 8 percent of respondents indicating being otherwise entertained in-store. Post-’90s consumers are more they went online to make their last comfortable going online to shop, but luxury purchase, compared with half of there is still a substantial mismatch people who do so when buying apparel between the 18 percent who said they or consumer electronics. did so last time out, and the third of respondents who indicated it was likely they would in the next 12 months.
22 China Luxury Report 2019 Exhibit or 17online rc ase cons ers are de andin s erior Fore eriences online purchases, t ro consumers ersonali ation are demanding superior eas experiences tr on through and re i deli er personalization, ser ice easy try-on, and premium delivery service.
Would this factor increase your likelihood of purchasing online? % of post-’80s and post-’90s respondents saying “yes”
Artificial-intelligence equipment/technology to suggest on Personalized matching products 55% experience Keep records on what I have bought and what I like 50%
Dedicated sales guide for me 42%
Try-on Vitual try-on service 57%
Order online and try-it-on offline easily 45%
Delivery White-gloves delivery services 51%
Distinctive shopping bag 51%
Fast delivery services within 24 hours 50%
Convenience Easy and free to change or return the product 35%
SOURCE: China Luxury Report 2019
Looking to the future, luxury brands When it comes to devising an online can tempt their young customers online sales strategy, few brands have by digitizing the intimate, personalized chosen to establish a comprehensive experience that attracts them to brick- presence across China’s multifarious and-mortar stores (Exhibit 17). e-commerce channels, comprising brand-owned as well as mainstream Virtual try-on services and matching B2C platforms like Alibaba’s Tmall, and suggestions curated by artificial luxury verticals like domestic player intelligence (AI) both increase the Secoo, and London-based Net-A- likelihood consumers will purchase Porter (Exhibit 18). online, as can premium perks like 24-hour white-glove dispatch, and distinctive shopping bags.
China Luxury Report 2019 23 Exhibit a or 18 l r la ers are acti e in rand o ned c annels Major ile luxury artici ation players are active in in ainstrea brand-owned channels, whileeco erce participation and in mainstream l r erticalsB2C e-commerce is still and luxury lo verticals is still low.
No official presence Branding only Limited e-commerce Active e-commerce presence presence
Brand owned Mainstream B2C e-commerce Luxury verticals
International JD Alibaba leaders Local leaders WeChat WeChat Brand. Brand public mini TOP Luxury Net-a- com app account program JD.com1 LIFE Tmall Pavilion porter Farfetch Secoo2 Mei.com Text Text Text Text Text Gucci
Text Text Text Text Campaign- Burberry based store
Text Text Text Text Text Campaign- Watches Selected Eyewear Cartier based store only SKU only only
Text Text Text Text Text Text Text Campaign- Louis Vuitton based store
View offline Text Text Text Text Text Accessory Limited Campaign- Partner on Limited inventory and vintage Dior edition only based store limited SKU products only only
Text Text Text Text Text Text Text Text Text Chanel
1Regard as “active presence” if JD self-operated brand store exists; can be sourced from brand or authorized distributors. 2In 2018, Gucci partnered with Secoo.com to sell more than 100 SKUs in 8 categories. SOURCE: Press search
Brand websites and official WeChat Mainstream luxury B2C platforms offer When it comes to luxury verticals such channels offer the richest experience brands the potential to generate high as Secoo and Net-A-Porter, brands and, naturally, the most flexibility when traffic volumes for relatively low initial have less influence over customer it comes to content, not to mention costs, as well as a degree of flexibility experience, in particular how they are comprehensive ownership of customer when it comes to customizing content presented, raising image concerns data. Marketing managers overseeing and merchandising. Building a presence for those attempting to orchestrate a brands with sufficient clout can seek to on these platforms is a strategy favored truly omni-channel and singular brand take advantage of consumers’ affinity by smaller brands that want to enter experience. Merchandising and price for online exclusives and limited-edition e-commerce with minimum investment, control on domestic sites is also a major partnerships as a means of driving sales and who subscribe to the idea that they concern, with some sites discounting to their brand-owned channels. will eventually yield high-volume sales. selected products by as much as 70 percent. There are lingering questions over product authenticity.
24 China Luxury Report 2019 China Luxury Report 2019 25 What does it all mean for luxury brands?
The imperative for global brands is Since the majority of luxury purchases also requires a considered approach to become the leading form of social are made offline, brands should also to e-commerce, one which cultivates capital for China’s young luxury reimagine the in-store experience. a rich and consistent brand image on consumers, and stay there. Catering to young consumers’ desire owned platforms, while making sharp for personalization—to feel different choices over whether or not to reach for This demands an “always on” approach and valued—is key, as is doubling down the eye-popping traffic on mainstream centered around a rapid cycle of new on the concept of the store as its own e-commerce platforms. and refreshed product launches that media channel. Brands would also be intimately intertwine with ready- Finally, as young consumers blur wise to invest in highly trained staff to-go viral media, including “sticky” the line between engagement and capable of maintaining one-to-one nicknames and innovative campaigns. purchase, domestic and overseas, and relationships with customers in and Newness and exclusivity could also be online and offline, the new battleground beyond store, in effect becoming their fostered through launching limited- for luxury brands requires fundamental personal stylists, backed by customized editions, collaborations with KOLs and organizational transformation. This narratives and personalized product influencers, and hosting an annual requires not only winning in digital, recommendations powered by AI. calendar of special events, particularly but also more seamlessly integrating around art and fashion. As our research has shown, there business units across brands, functions, is unparalleled opportunity to tap and regions. China’s young luxury consumers are demand for luxury among the affluent more interested in aspiration than Perhaps the most exciting aspect of residents of China’s lower-tier cities, heritage, making it imperative for China’s young luxury market is the most of whom remain underserved brands to modernize their stories and scope of opportunity for digitally savvy by brick and mortar stores. Instead deliver them through digital channels. brands to capture its ever-shifting of over-expanding store footprint, Savvy brands should design an zeitgeist, and the imperatives this brands should devise a targeted integrated marketing strategy that provides for more established brands to travel retail strategy that captures satisfies young Chinese consumers’ stay on top of their game. these consumers on the move – and appetite for consuming media at every follows them home. Having done so, available touchpoint, whether they are sales staff can maintain a long-term online or offline, and whether they are relationship with the consumer through travelling or staying in China. Local astute use of WeChat and other social digital marketing teams should be platforms. Light asset store formats empowered to make quick decisions like pop-ups are worth consideration and entrusted to experiment with for brands with sufficient sizzle. the new media formats and channels Reaching young Chinese consumers favored by young consumers.
26 China Luxury Report 2019 About the McKinsey China Luxury Survey 2019:
Our study combined a comprehensive —— ~1,000 consumers who have —— ~100 luxury brands. survey of Chinese luxury consumers, purchased luxury goods in the —— The survey has also incorporated ethnographic research of last 12 months. UnionPay transaction data by representative young Chinese luxury —— Respondents are in the 18–52 age brand, product and channel over consumers, and market research of range from 15 tier 1–3 cities in China, the last 12 months from the same global luxury companies. with ~200 each for post-’65s/’70s, ~1,000 samples —— The survey and analysis were post-’80s, post-’85s, post-’90s, conducted from October 2018 to and post-’95s consumers. January 2019, and is part of a —— Six luxury and accessible luxury series of surveys McKinsey categories: ready to wear, conducts on China’s luxury market sportswear, jewelry, watch, bag, every other year. and shoes.
About McKinsey Greater China’s Apparel, Fashion, and Luxury Group
McKinsey’s Greater China Apparel, We have over 30 consultants in McKinsey’s Apparel, Fashion, and Fashion, and Luxury Group is dedicated the Greater China region focused Luxury Group provides the following to serving both international and on the apparel, fashion, and luxury services to clients: consumer domestic companies that are either industry, providing clients with full insight-driven brand and portfolio established industry leaders or service including strategic consulting, strategy, product and assortment companies with substantial growth end-to-end conceptual design and strategy, agile Go-to-Market and prospects. We assist clients by helping implementation support. Since 2009, supply chains, omni-channel strategy, them understand their customers, McKinsey has carried out annual and digital transformation, global M&A, establishing brand positioning, product bi-annual Chinese and global organizational transformation, etc. innovation, boosting sales, optimizing consumer surveys. We also regularly hold forums, operations, and building sustainable In addition to regularly conducting luncheons, and other events for core competitiveness. in-depth research on the fashion C-suite executives of leading fashion industry, we have worked closely with and luxury-goods businesses, allowing the Business of Fashion, Women’s Wear them to share experiences and insights Daily, and other leading global fashion from other industry leading peers. organizations.
China Luxury Report 2019 27 Authors
Lan Luan Aimee Kim Daniel Zipser Partner – Shanghai Senior Partner – Seoul Senior Partner – Shenzhen [email protected] [email protected] [email protected]
Minyi Su Adrian Lo Engagement Manager – New York Associate – Hong Kong [email protected] [email protected]
Cherry Chen Cherie Zhang Knowledge Specialist – Shanghai Knowledge Expert – Shanghai [email protected] [email protected]
The authors would like to thank Glenn Leibowitz, David Green, Lin Lin, Xiaoyun Li, Saskia Hedrich, Felicia Jia, Dina Xiao, Frannie Li, Lei Xu, Erik Rong, Chris Fang and Jeannie Tse for their contributions to the research and writing of this report.
28 China Luxury Report 2019 McKinsey Greater China’s Apparel, Fashion and Luxury Group April 2019 Copyright © McKinsey & Company Designed by GCO NewMedia www.mckinsey.com @McKinsey @McKinsey