March 4, 2019

Chinese consumers are buying luxury goods directly at home

Chinese women luxury spending locally in China

Chinese consumers are still driving demand for luxury products globally, but they are making more of their purchases back home. In the past, Chinese consumers would often shop overseas, especially in Hong Kong and Europe. However, the trend is now reversing, and it’s primarily due to today’s macroeconomic landscape. In the doom and gloom of trade wars, luxury products of all things remains a bright spot.

What in the world does macroeconomics have to do with luxury?

Macroeconomics and politics are primarily to blame for this. The ongoing trade war between the US and China impacts demand in many different ways. Since trade wars depend on tariffs, both countries suffer from rising import costs. To combat this, the Chinese government enacted a series of policies to help spur on consumer spending. Luxury brands worried about the possible fallout from the trade war instead had a record year in large part due to Chinese consumption. Beijing increased the amount of tax-free goods consumers could purchase, cut import tariffs and revised its income tax. All these measures help improve demand domestically. As such, local consumers no longer need to travel overseas to purchase luxury goods.

 What else caused Chinese demand to spike?

Other than local government intervention, Chinese consumers benefitted from:

  • A weakening RMB which helps with demand as its less expensive to shop at home than elsewhere
  • Luxury brands tapping into new local markets. For example, luxury brands like LV and Prada expanded to cities like Wuxi, Xi’an and Wuhan. Although you may have never heard of these cities, they host millions of Chinese citizens each, which helps draw investors and brands in the long term.
  • There are more options online for luxury purchases. For shoppers who don’t have access to a boutique near them, they can instead rely on e-commerce giants like T-Mall and JD to source their goods
  • Better touch points. Brands are improving and localizing their store experiences to draw in more crowds

As the global picture continues to unfold, it’ll be interesting to see how Chinese demand for luxury goods continues to evolve, especially in a context of unprecedented debt in China.

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