Luxury market gains back shine on recovering consumer confidence

China's luxury market is expected to recover this year, supported by its rebounding consumer confidence, said a recent report.

The report, jointly issued by Ruder Finn and market research group Consumer Search Group (CSG), said with pressure from the COVID-19 impact weighing less on China's economy and the optimization of control measures, the vitality of the country's luxury market is expected to be restored this year.

Correspondingly, consumer confidence has surged and exceeded the pre-pandemic level, the report said.

According to a survey in May by Ruder Finn and CSG, consumer confidence on the Chinese mainland stood at a low level due to COVID-19 impacts. Only 45 percent of respondents said they will "spend more" on luxury goods in the next 12 months and 24 percent will "cut the budget to this end".

However, since December, when China optimized its pandemic prevention measures, consumer confidence also showed signs of rapid recovery. According to a survey from December to January, 52 percent of respondents said they will "spend more" on luxury items, while those holding "spending less" fell back to 10 percent — the same figure recorded before the pandemic.

Consumer confidence in Hong Kong started to pick up last January — earlier than on the mainland. The survey found that up to 44 percent of Hong Kong respondents will "spend more" on luxury goods in the next 12 months, while only 10 percent stated "spending less", compared to 32 percent and 20 percent, respectively, in 2020.

According to Yaok Research Institute, in 2022, China's luxury market totaled 956 billion yuan ($138.86 billion), taking up 38 percent of the global total.

"Chinese consumers are an important driving force of the global luxury consumption market. Meanwhile, high-end consumption, centering on luxury consumption, is a major force to stimulate domestic demand," said Zhou Ting, head of Yaok Research Institute.

With the boom of digitalization and its deeper penetration into people's daily lives during the pandemic, consumers on the Chinese mainland are more accustomed to online consumption scenarios, including for luxury goods.

Consumer acceptance of luxury purchases online has also increased, the survey found. Mainland respondents accepting e-commerce channels increased by 10 percent to 30 percent compared to the 2021 level. "Saving time" (46 percent), "more convenient" (44 percent) and "easier to browse through the brand's collection of products" (43 percent) are the main reasons why mainland respondents prefer online channels.

However, Hong Kong consumers still prefer buying through offline channels, but the proportion of those who trust online channels among the total increased from 3 percent to 10 percent. "Easier to compare prices online" is the primary reason for Hong Kong consumers choosing online channels, said the report.

"China's digital transformation offers more marketing and sales opportunities for luxury brands. Meanwhile, providing better retail experiences is also crucial to attracting consumers and raising brand value," said Hong Yong, an associate research fellow in the e-commerce research department of the Ministry of Commerce.

Gao Ming, senior vice-president and managing director of Ruder Finn Group's Luxury Practice Greater China, said: "It's good to see a strong rebound in consumer confidence in the domestic luxury market, but the normalization of overseas travel may take some consumers away, which will weigh on the growth of domestic luxury consumption. As opportunities and challenges coexist, it is necessary to further narrow the price gap between the domestic and foreign markets, and provide more attractive value-added services.

"Also, we should accelerate digitalization to better deal with the complex and ever-changing market environment more efficiently."