A report released this week by Bain Capital and Fondazione Altagamma revealed the Chinese luxury market is expected to slow down. Sales in Mainland China are expected to grow just 2% to 4% this year and remain in the low single digits 4% to 6% in 2014. Part of that is due to a crackdown on ‘gifting’ or bribery, which made up a large portion of domestic luxury goods.
But as mentioned in L2’s breakfast event for China Luxury, Chinese consumers account for 30% of global luxury purchases. Of those, 55% to 60% are purchased abroad. The Bain/Altagamma report identified duty free as a key driver of purchases in Asia, propped by high regional tariffs. Outlets are expected to gain importance, especially for tourists chasing even deeper discounts when shopping abroad.
Bright spots also exist domestically. Tier 1 cities are most affected by the slowdown while Tier 2 cities fare much better and Tier 3 is in the midst of a boom in cosmetics sales. Furthermore, trendy, relatively affordable American brands popular with young Chinese consumers still stand a chance.
The slowdown in domestic spending has lead some brands to reconsider adapting their China strategies. Digital is more important than ever, and plays a role in the growing Beauty category where e-commerce accounts for 14% of sales. Efforts in social, advertising, and connecting with Chinese consumers could pay off as they shop abroad.
For more on how brands can use digital to their advantage in China, look for our upcoming Digital IQ Index: Luxury | China report.