Consumers stay outside a duty-free shop in Haikou on Riyue Square, Haikou City, Hainan Province, China, September 2, 2021.
Wang Jianfeng | Future Publishing | Getty pictures
BEIJING – Chinese consumers spend more on luxury goods at home, even though they can not easily travel abroad due to pandemic-related restrictions, said the consulting company Bain & Company in its annual report on the luxury sector.
Sales of personal luxury goods in mainland China rose 36% to 471[ads1] billion yuan ($ 73.59 billion) in 2021 from a year earlier, according to Bain estimates released Thursday. That is more than double the 234 billion yuan in spending on luxury goods on the mainland in 2019, before the pandemic.
The growth in sales of luxury goods comes despite a decline in Chinese retail sales overall since the pandemic started in 2020. The data also reflects the growth of China’s domestic market as a destination for international brands.
Mainland China’s share of the global luxury market rose to around 21% in 2021, up from around 20% in 2020, according to Bain.
“We expect this growth to continue, putting the country on track to become the world’s largest luxury goods market by 2025 – regardless of future international travel patterns,” the report said.
“China is still the best consumer history in the world,” said Bain analysts, pointing to the country’s growing middle class. “The average increase in disposable income is still higher than inflation.”
Sales of leather goods grew by about 60% and were the fastest growing category, followed by about 40% growth in fashion and lifestyle, the report states.
Several duty free shops in China
An important driver for the local luxury market is the growth of duty-free shops in Hainan, an island province in southern China. In the last two years, new government policies have cut taxes and introduced other business-friendly measures that aim to turn the region into a free trade port and international consumption center.
Even before pandemic-induced travel restrictions prevented customers from traveling abroad, luxury brands were already moving to Hainan and other parts of mainland China from Hong Kong due to violent protests in the semi-autonomous region.
Sales of luxury goods in Hainan’s duty-free shops had an annual growth rate of 85% in 2021 – reaching 60 billion yuan – after a 122% increase from year to year in 2020, according to Bain. The stores accounted for 13% of mainland China’s personal luxury goods market last year, up from 9% in 2020 and 6% in previous years.
However, Bain analysts said that the biggest driver of Hainan’s tax-free success was huge discounts that went beyond tax savings. The “significant price gap” between the official listed price and the one in Hainan contributed to slow growth in other sales channels, at least for some products, the report said.
Analysts at The Economist Intelligence Unit expect new government policies to help China’s domestic duty-free market nearly quadruple to 258 billion yuan between 2021 and 2025, with the opening of new duty-free shops in major Chinese cities such as Beijing, Tianjin and Shanghai.
But it is conditional on the Chinese government relaxing restrictions on international travel and duty-free purchase quotas, analysts said in a report late last month.
“The duty-free market in Hainan still lags behind in product selection and price competitiveness, especially for medium to high-priced products,” they said. “Meanwhile, Chinese consumers may prefer to combine shopping with a holiday abroad, to experience foreign cultures and environments.”
How China’s luxury consumption in 2021 piled up globally
Global spending on luxury goods reached 283 billion euros ($ 320.6 billion) in 2021, and recovered after a decline in 2020 to exceed 2019 levels of 281 billion euros in luxury sales, according to Bain estimates.
However, Chinese consumers still spent around 30 billion euros less on luxury goods last year than they did in 2019, the report showed.
Robust sales growth for luxury goods slowed sharply in the second half of last year, analysts said, pointing to factors such as a high comparable base in 2020, sporadic Covid outbreaks and new rules for online influencers.
The decline in growth showed that luxury was not immune to a general decline in Chinese spending over the past six months. Retail sales increased by a disappointing 1.7% year-on-year in December.
Looking ahead, Bain analysts expect the domestic luxury market to grow at a more moderate pace by 2022.
“Occasional localized Covid-19 outbreaks are likely to continue throughout the year,” analysts said. “We expect a similar negative impact on mall traffic in affected cities.”
Local authorities have quickly locked neighborhoods or restricted travel to prevent coronavirus outbreaks from spreading. The guidelines may discourage people from going to places where they may come into contact with a confirmed case, or be quarantined due to an overlapping travel history.
One such case in Beijing this month visited the luxury shopping center SKP, according to an extensive travel story revealed by municipal authorities.