Wed. Jan 20th, 2021

HONG KONG — China nearly doubled its share in the global luxury market to 20% this year, compared with major declines elsewhere around the world, as the coronavirus pandemic forced Chinese shoppers to buy locally, according to a new report.

For years, international luxury brands have depended on travelers from China for sales growth. Before the outbreak curbed travel, 70% of these Chinese consumers made purchases overseas because the same goods cost more domestically due to tariffs.

But with international travel restrictions, big-spending Chinese customers have turned to domestic malls and e-commerce sites for their shopping sprees. A recent relaxation of rules on purchasing tax-free items on China’s island province of Hainan also has boosted luxury sales in the country.

Luxury sales in mainland China is expected to grow 48% to 346 billion yuan ($52.8 billion) by the end of 2020 compared with last year, according to the report published by consultancy Bain & Co. and Tmall, an Alibaba Group Holding e-commerce platform.

However, the amount of the increase is not enough to compensate for the decline in Chinese consumers’ overseas spending. Shoppers in China spent approximately 35% less on luxury goods this year compared with 2019.

That contributed to a 23% decline in the global luxury market during the same period.

“Through the COVID-19 pandemic, we have seen the global luxury goods market shrink, as economic and social considerations have limited access,” said Bruno Lannes, a Shanghai-based Bain senior partner and one of the report’s co-authors.

While Bain expects mainland China’s share of the global luxury market to decline when travel gradually resumes, it believes that the country is on track to surpass the U.S. to become the world’s largest luxury market by 2025, as brands continue to narrow the price difference in markets.

Meanwhile, Chinese shoppers are increasingly turning to online platforms for purchases of luxury items. The report showed that luxury sales through digital channels in China increased 150% in 2020 from last year, helping lift online penetration of luxury goods to 23% from 13% during the period.

Hainan is the other bright spot for luxury brands. The southern island province has become a retail paradise for mainland shoppers during the pandemic, after authorities more than tripled the amount of duty-free goods a traveler can purchase to 100,000 yuan.

Offshore duty-free sales in Hainan surged to 25 billion yuan from the beginning of this year to Dec. 14, almost doubling full-year sales in 2019, according to the Hainan government.

“Luxury brands view Hainan as an opportunity not only because it offers a short-term alternative to duty-free shopping in traditional destinations like Hong Kong and South Korea, but also because it is part of the government’s plan to keep Chinese consumption in mainland China,” the report said.

By Bureau