Why are luxury brands popular in China?
The main reason Chinese consumers are buying Western luxury items is because they simply view themselves as cosmopolitan rather than specifically Chinese. As luxury demand is still in its infancy in China, first-time purchasers simply go to the most established international brands for elements of trust.
Scholars argue that rapid urbanisation and consumerism did more to fuel China's luxury goods obsession, as mature buyers use brands like Hermès, Chanel and Dior to project worldliness.
Today, China is home to more than 40 percent of the global middle class. In the past decade, the compound growth rate of private household financial assets in China surpassed 15 percent, the highest among all countries. The soaring disposable income and spending power have led to a flourishing luxury goods market.
Consumers who buy luxury goods are not just purchasing a product; they are investing in a lifestyle, a social status, and a sense of belonging to an exclusive club of people who can afford to buy these brands.
The difference in luxury goods prices between China and Europe is the result of a combination of factors, including taxes and tariffs, distribution and logistics costs, and pricing strategies. These differences have significant implications for consumers, luxury brands, and the industry as a whole.
In China, the dominant high-end luxury houses include Chanel, Dior, Hermès, Gucci, and Louis Vuitton. Low end luxury brands tend to be cosmetics brands, with Lancôme and Estée Lauder being the most popular in China, according to Agility Consulting.
In addition to its low labor costs, China has become known as "the world's factory" because of its strong business ecosystem, lack of regulatory compliance, low taxes and duties, and competitive currency practices.
The luxury goods market is worth billions and will continue to grow by 2030. Some of the reasons why people buy luxury goods when they can't afford them include a sense of irrationality, the supposed quality, the impact they have on self-esteem, and a sense of accomplishment.
| 1. | Incentives for doing business |
|---|---|
| 2. | Economic development zones (EDZs) |
| 3. | Ease of Doing Business |
| 4. | Network of FTA's |
| 5. | Ongoing market reforms |
Demand for luxury goods increases when a person's wealth or income increases. Typically, the greater the percentage increase in income, the greater the percentage increase in luxury item purchases. Since luxury goods are expensive, wealthy people are disproportionate consumers of luxury goods.
What is the demand for luxury brands?
KEY MARKET INSIGHTS
The global luxury goods market size was valued at USD 272.74 billion in 2022 and is anticipated to grow from USD 284.00 billion in 2023 to USD 392.40 billion by 2030, exhibiting a CAGR of 4.7% during the forecast period. Premium products are key entities showcasing the status symbol of its owner.
Luxury used to be a synonym for quality. Fashion's most storied brands built their brands on the best materials and the most skilled craftspeople, then charged customers a premium for both.
Personalization, digital transformation, innovation in product development, AR/VR, subscription services, collaborations with other luxury brands, and sustainability are some of the key strategies that can help brands stay ahead of the competition and drive growth.
Looking at the state of international prices within the luxury sector, Retviews' data show that high-end luxury players are maintaining a lower price point in Japan than in China. Aside from several brand-specific exceptions, China remains the most expensive Asian market for luxury leather goods.
Although China's demand for luxury goods has declined in 2022 for the first time after five years of exponential growth, it remains a strategic market for the high-end industry.
Revenue in the Luxury Goods market amounts to US$53.61bn in 2023.
The annual revenue of luxury leather goods in China is expected to reach 9 billion USD in 2023. The market is expected to grow by an annual rate of 7%. The top 5 bags and leather goods brands are Hermès, Chanel, Louis Vuitton, Gucci, and Dior.
Gucci China is known for its extravagant, rebellious and luxurious designs. Its customers are mostly affluent members of generation Z who can afford to spend more and want to show their social status.
| Product | 1st | 2nd |
|---|---|---|
| Cosmetics, perfumes and personal care | Chanel | Lancôme |
| Watches | Rolex | Omega |
| Suitcases and handbags | Louis Vuitton | Gucci |
| Menswear | Giorgio Armani | Ermenegildo Zegna |
Manufacturing materials are easily accessible in China and at a low cost. This makes manufacturing costs low therefore minimizing the cost of products. For this reason, China becomes the best place to import products from. They have state of the art technology and machines to manufacture the best quality products.
What products do we rely on China for?
- Medical Products Manufacturers. Medical products manufacturers continue to have their products made in China in order to reduce costs. ...
- Electronics Industry. ...
- Plastic Product Manufacturing. ...
- Clothing & Textiles.
- Lower Production Cost. Working with a manufacturing facility in China means you can reduce the production cost, without reducing volume output. ...
- High Output in Less Time. ...
- Easy Market Expansion Opportunities. ...
- Finding a Factory. ...
- Language Difficulty. ...
- Shipping. ...
- “Made in China” Versus “Made in the U.S” ...
- Quality of Work.
Many countries have seen an increase in spending on luxury items, but one country now stands out as the world's biggest spender on luxury goods per capita: South Korea. According to analysts from Morgan Stanley, South Korea's spend on luxury goods saw a 24% increase in 2022 to €15.4 billion or about €300 per capita.
In 2020, the United States was the top ranked personal luxury goods market with an estimated market value of about 55 billion euros. The global luxury goods industry, which includes drinks, fashion, cosmetics, fragrances, watches, jewelry, luggage and handbags, has been on an upward climb for many years.
Ranked by yearly revenue, the American luxury goods industry lead all other nations by far, generating around 65 billion U.S. dollars in 2020. The Chinese luxury goods industry ranked second with revenue of around 39 billion U.S. dollars. These two were followed by Japan, France, and Germany.
A skilled workforce: If you need talented, competent workers and specialist manufacturing know-how, China is the place to be. Low corporate tax: Corporate tax in China is typically 25%, which is more than corporate tax in the UK, but much less than corporate tax in India, Mexico or Brazil.
The largest Chinese companies have market interests in construction, oil production, insurance, banking, and technology.
| Company | % of revenues from China |
|---|---|
| Tesla | 22.3% 22.3% 22.3% |
| AMD | 22.1% 22.1% 22.1% |
| TE Connectivity | 22.0% 22.0% 22.0% |
| Agilent Technologies | 21.9% 21.9% 21.9% |
Customers desire products and services done by top professionals with the highest quality. This can often be immediately recognizable, which sets luxury brands apart.
Some people have highlighted that luxury goods can contribute negatively to inflation. Establishing what causes inflation is a good start to understanding how the economy works. However, for many strong economies, luxury goods can attract highly wealthy individuals to spend money in their nation.
What is the law of demand for luxury goods?
Luxury goods have high income elasticity of demand: as people become wealthier, they will buy proportionately more luxury goods. This also means, however, that should there be a decline in income, its demand will drop more than proportionately.
As restrictions ease and cross-border travel picks up, the re-emergence of Chinese consumers—the largest cohort for spending in the global luxury goods sector—is expected to boost demand for high-end clothing, accessories and other items by 20% in 2023.
A luxury brand is a brand that is characterized by a high level of quality, exclusivity and high price tags. Luxury brands are present in many different sectors, especially retail, hospitality and automotive.
While the rate of growth in the sector has slowed slightly in recent months, a whopping 95 percent of luxury brands saw profits fatten in 2022, according to a Bain & Company report. Hermès, maker of decadent silk scarves and the infamous Birkin bag, saw a record 38 percent jump in profit from 2021.
Luxury has a unique potential to fulfill that psychological longing for a sense of accomplishment. In fact, luxury purchases have been shown to oftentimes trigger the release of dopamine, the feel-good hormone. People buy or desire to experience luxury for the purpose of making themselves or others feel good.
A luxury brand is exclusive and usually has natural scarcity
I work with my clients to incorporate "exclusivity" into their brand. For example, when you think of a luxury brand, the goods or services are usually handcrafted, expensive to afford, or limited in edition.
The definition of 'luxury' by price
Price can be considered as a dimension ranging from a minimum level for entry line luxury products to a maximum level that corresponds to the highest form of luxury. The higher the price, the more luxurious consumers perceive a product (Yeoman and McMahon-Beattie 2006).
There are many different forms of luxury brand strategy to make sure brands stand out from their competitors. This includes focusing on the brand's origin or heritage as well as the services they offer and the bespoke options they can provide. Luxury brand marketing can also focus on making sure they appear exclusive.
Luxury brands are defined by their exceptional quality, design, and craftsmanship. They cater to a broader audience than ultra-luxury brands and are more accessible in terms of price. Luxury brands focus on creating products that are exclusive and of high quality, but are still within reach of a larger market.
A strong brand image can influence consumer perceptions, purchasing decisions, and overall brand loyalty. As such, it is important for luxury fashion brands to invest in creating and maintaining a strong brand image in order to remain competitive in the market.
Which country is the largest market for luxury brands?
Luxury goods industry revenue worldwide 2020 & 2025, by country. Ranked by yearly revenue, the American luxury goods industry lead all other nations by far, generating around 65 billion U.S. dollars in 2020. The Chinese luxury goods industry ranked second with revenue of around 39 billion U.S. dollars.
While China's living standards improved greatly, new industrial power led to counterfeits, as factories could cheaply re-create brand products. Many companies consequently lost control of their supply chains.
It is because Chinese markets have access to all the resources required to produce counterfeits due to their high production rate, low-cost labour, and adaptive technologies setup by significant brands since the reform of China's economy in 1978.
Driven by a combination of national pride in “Made In China,” internet trends, and the eclectic pockets of subcultures present in such a populated nation, there is a rising number of local streetwear brands gaining a cult following.
China is also currently the second largest apparel market in the world, valued at more than US$177 billion in annual sales.
According to Barclays estimates, China accounts for around 35 percent of Gucci's annual sales, compared to 27 percent of fashion and leather goods sales for LVMH and 26 percent for Hermès.
Many countries have seen an increase in spending on luxury items, but one country now stands out as the world's biggest spender on luxury goods per capita: South Korea. According to analysts from Morgan Stanley, South Korea's spend on luxury goods saw a 24% increase in 2022 to €15.4 billion or about €300 per capita.
| Rank | City | Country |
|---|---|---|
| 1 | Milan | Italy |
| 2 | Paris | France |
| 3 | New York City | US |
| 4 | Dubai | United Arab Emirate |
Since fast fashion requires speedy production, the factories that employ Chinese workers are dangerous and pose serious health risks. Sweatshop workers live in crowded dormitories and have no access to childcare. Furthermore, there is a high risk of exposure to harmful molecules like silica dust and lead.
China has made a fortune producing cheap products that sell for low prices around the world. Yet many high-end goods manufactured in China –- everything from iPads to Coach bags — actually cost more in China than they do in the United States.
Why are knockoffs not illegal?
Some knockoffs might imitate an established product without infringing. That could be the case because the underlying work—a dress, for example—cannot be protected under the law, meaning that a knockoff doesn't violate any legal rules.
Footwear is the most counterfeited product in the world. For counterfeiters, function is second to form. They try to copy the designs of the biggest names in shoe ware with poor-quality materials, capitalizing on unknowing shoe collectors and hurting brands during their biggest sales period of the year: the holidays.
Criminal Law Regulations
Specifically, it is a crime to produce or sell counterfeits and trademark logos.
The Cost of the Product
Chinese products are inexpensive due to mass production and low labor costs which get shipped all around the world. In the past, China has made a huge investment in building required infrastructure such as electricity generation, ports, highways, etc. to increase productivity.
