China Luxury Report 2019 - How young Chinese consumers are reshaping global luxury
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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
of 28 percent from 2018 to 2025, taking fashion market. As explored in our
almost two-thirds
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
2025, delivering 65% of
Other
worldwide
consumers 2018–25 global growth
1,227
770
921 (40%) 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 5China’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
to show off their success, and to child generation” are the recipients of
new to luxury, power
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
China’s post-’80s (born in the 1980s) Following in the footsteps of their
Institute modeling suggesting that
generation, who broadly map to slightly older peers, China’s post-’90s
upper-middle-class Chinese families
Generation Y, are the driving force of consumers, better known as
top up their post-’90s children’s bank
the country’s luxury appetite. Generation Z, are delivering the shot in
balance by at least 4,000 RMB per
the arm China’s luxury market needed
Consisting of 10.2 million luxury month, or half their personal income.
to emerge from several years of
consumers, they accounted for more This financial cushion has a large impact
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
Exhibit 2
of both 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 2019A 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
Young
Exhibit 3 consumers are new to luxury: Half of post-90s
consumers
Young consumersonly started
are new to luxury:last
Half year
of 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 7Section 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
luxury, online and in the flesh. in the sense of being rarely seen on
combinations is key
the street, or simply not available in
Young Chinese consumers’
Young Chinese consumers told us mainland China.
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
That sentiment intensifies towards the Brand remains king when it comes to
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
Brand is important, but relatively less so among young consumers.
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
Fabric/material 11 3 • Commanding knowledge
9
6 1 beyond simply brand is another
Production process 8
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 2019Brand 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 France 73%
76%
Britain
France 90%
Perceived
brand
Europe 30% Europe 40% Europe 33%
origin
Others 23% Others 27% Others 25%
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 9For 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 54
29
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 2019China 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
All Chinesetouchpoints
offline 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
and online 100%
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 2019Exhibit 8
All channels except for traditional ads command high engagement.
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
Owned channels offline 99
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 13Exhibit 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 widest possible audience.
luxury products in daily life, making
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 2019Exhibit 10
Top celebrities and key opinion leaders (KOLs) have wider reach than brand-owned channels.
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
Rebecca
4,076,000 LV 712,000 oriented”
Coach 3,747,000 Burberry 600,000
and interactive
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 15Exhibit 11
Younger generations have a stronger preference for fashion and art events where they can
highlight their sophisticated tastes.
Art events where they can highlight their sophisticated 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 2019China 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
but there is more to it than that. The needs.
are influenced and
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
WeChat
through messages.
physical interaction and WeChat messages
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 2019Exhibit 13
Thanks to social-media engagement and cultivation, younger consumers make faster
consumers
purchasing make faster purchasing decisions
decisions.
How long did you consider before making the purchase decision?
% of consumers surveyed
Post-’80s/’90s Post-’65s/’70s
60%
of post-’80s/’90s make their
decision in 2 months
compared to only
33% 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 19Exhibit 14
Offline
in theis near
still expected
future 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%
~6%
2-3x
of current online
~90% luxury market for
Chinese consumers
92%
Offline
~10%
~12% ~12%
Online 8%
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 2019Exhibit 15
Among offline channels, post-’90s consumers shop across different types of bricks-and-mortar
stores and no longer
department only focus on premium department stores.
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 21personalization service is offered
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
purchase in store, ideally in the form of Online opportunity hard-to-find products.
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 2019For online purchase, consumers are demanding superior
Exhibit 17
experiences through
For online purchases, consumerspersonalization,
are demanding superioreasy try-on
experiences and premium
through
delivery service
personalization, 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 23Major
Exhibit 18
luxury players are active in brand-owned channels,
while participation
Major luxury ininmainstream
players are active B2C while
brand-owned channels, ecommerce
participationand luxury
in mainstream
verticals
B2C is still
e-commerce low verticals is still low.
and luxury
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
Dior inventory
edition only based store
and vintage
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 2019China 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 2019About 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 27Authors Lan Luan Aimee Kim Daniel Zipser Partner – Shanghai Senior Partner – Seoul Senior Partner – Shenzhen Lan_Luan@mckinsey.com Aimee_Kim@mckinsey.com Daniel_Zipser@mckinsey.com Minyi Su Adrian Lo Engagement Manager – New York Associate – Hong Kong Minyi_Su@mckinsey.com Adrian_Lo@mckinsey.com Cherry Chen Cherie Zhang Knowledge Specialist – Shanghai Knowledge Expert – Shanghai Cherry_Chen@mckinsey.com Cherie_Zhang@mckinsey.com 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
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