China's luxury market, already the world's largest before the COVID-19 pandemic, is exhibiting unstoppable growth in the face of the pandemic and will account for 20% of the global industry in 2020 compared with 11% in 2019.
A new industry report by management consultancy Bain & Company and TMall, the Chinese website selling brand name goods, confirms China is the driving force keeping alive the world's hard hit luxury industry amid the pandemic's economic devastation.
"Mainland China is the only major luxury market to grow in 2020," according to Bruno Lannes, a partner with Bain's consumer products and retail practices. "China's luxury market is now bigger than ever."
The Bain/TMall report said the Chinese luxury market will grow by 48% this year to about $52.9 billion in the midst of the pandemic. It also estimates China will be the only region to report year-over-year growth this year.
Wealthy Chinese consumers remain the backbone of the global luxury industry and their spending will propel China into becoming the world's premier luxury market by 2025.
China's luxury market will overtake Europe and the Americas by that same year. By this time, wealthy Chinese will account for almost half of all luxury spending worldwide.
This year, COVID-19 travel restrictions helped boost sales in China. Another factor behind the surge is that welcome phenomenon called "revenge spending," or the release of pent-up demand as people emerged from weeks of lockdowns. Revenge spending helped boost sales this spring for several companies such as Tiffany's.
Global luxury brands still see China as their land of promise. LVMH, the world's biggest luxury group, praised the "great strength of the demand coming from mainland China" in an October earnings call.
"From a demand viewpoint, we have no particular worry, and we are very pleased with the response," said chief financial officer Jean-Jacques Guiony.
"But for the time being, there are serious constraints as to customers' ability to shop outside China, and this is obviously a weight on the growth for coming quarters."
Nearly 40% of Chinese consumers plan to do more luxury shopping online over the next few years. Another 40% expected to maintain their current activity, said the Bain/TMall report.
China's luxury growth industry expected to continue growing in 2021, albeit at a more subdued pace compared to 2020. Most brands believe the market will expand by some 30% as international borders start to reopen.
Over the next five years, the share of domestic spending will likely also subside as things gradually return to normal. The report said China is expected to become the world's biggest luxury market by 2025, even after the world "returns to pre-COVID-19 levels."
