Global consultancy McKinsey’s Chinese office has published a research report exploring luxury consumption trends in China. Its estimates are based on transaction data from UnionPay, one of the world’s largest debit and credit card companies, which mainly serves Chinese customers—and the numbers are eye-popping.
Spending on luxury goods–which include high-end shoes, bags, watches, jewelry and the like–by Chinese customers domestically and abroad reached RMB 770 billion (USD 114 billion) last year, representing one-third of luxury sales worldwide.
Meanwhile, China’s luxury goods market is expected to reach RMB 1.2 trillion (USD 180 billion) in 2025 and account for 65% of the sector’s global growth.
Driving this growth is the rise of the Chinese middle class. From 2018 to 2025, the number of households with monthly disposable incomes between RMB 17,450-26,180 (USD 2,600-3,900) is expected to grow at 28% compounded annually and comprise a base of 350 million people. In 2018, the average household consumption of luxury goods in China was almost RMB 80,000 (USD 11,800).
China’s growing appetite for luxury goods is a welcome sign for both high-end brands and local e-commerce platforms like JD.com and Alibaba.
The two Chinese e-commerce giants have taken strides into the luxury sector in recent years, including launching standalone platforms for premium brands—namely, JD.com’s Toplife, and Alibaba’s Tmall Luxury Pavillion—in 2017.
JD.com invested USD 400 million in London-listed fashion retailer Farfetch in 2017 before merging Toplife into Farfetch China this February in a move that reportedly gave JD.com’s 300 million users access to over 3,000 brands on Farfetch’s network of 1,000 luxury and boutique brand partners.
In October, Alibaba partnered with luxury goods conglomerate Richemont to offer the Yoox Net-a-Porter Group online retailer—which spans popular shopping websites Net-A-Porter, Mr. Porter, and Yoox— to Chinese consumers.
That said, McKinsey China estimates that offline sales will continue to dominate luxury sales over online channels. Offline sales are expected to grow 6% compounded over the next few years. Online will grow by two to three times to account for one-eighth of China’s luxury goods market by 2025.
Editor: Nadine Freischlad