The Meteoric Rise of China’s Luxury Consumption
No industry was safe from the havoc wreaked by the COVID pandemic – including the personal luxury goods market. The global luxury industry reported a 23% drop in 2020, representing the most significant annual decline in history and the first instance that sales have seen a contraction since 2009. Despite circumstances, Chinese consumers remained insatiable and the luxury sector in China continued its upward trend of at least 20-30% growth annually, to be the only regional market to grow in 2020 at a whopping 45%. While typical shopping hot spots such as Paris, London, Rome, New York, and Los Angeles saw a significant decline in sales due to the absence of affluent, high-spending Chinese tourists, emerging domestic shopping destinations such as Hainan saw a dramatic increase. Unsurprisingly, the luxury market in China is poised for tremendous growth over the next 10 years as China establishes more domestic luxury shopping destinations; consumer willingness to pay high domestic prices due to import taxes persists; and brands continue to leverage an entrant marketing strategy to frame themselves as premium luxury, such as how US outlet brand Coach has succeeded in China as a masstige luxury brand.
Greenfield Opportunity for the Resale Luxury Market
The resale luxury market may be the only instance where China significantly lags behind the USA. While China’s luxury resale market doubled from the previous year into 2020, this represents only 5% of the overall luxury market and is a far smaller value than the share resale comprises in Japan (28%) and the USA (31%). By comparison, the current resale luxury market is virtually non-existent in China, largely due to the traditionally-held cultural belief that when buying goods, especially luxury goods, the items should be brand new, never touched, and directly from the retail store. A major barrier for expansion of luxury purchasing by Chinese consumers has always been online and secondary resale platforms because purchases traditionally take place offline in-store due to the perceived ambiguity surrounding authenticity in alternative purchasing channels. Blockchain has revolutionized luxury product authentication for both the primary and secondary luxury markets by acting as a recordkeeper and enabling traceable documentation throughout a product’s entire journey.
With the rising global popularity of resale, Chinese consumers find themselves considering whether they can deviate from the long-held sentiment that value is derived from newness. This shift in consumer perception is currently being seen in the used automobile market, where, for the first time in 2020, Chinese consumers bought the same number of secondhand, gently used cars as they did brand new cars. China’s used car market will continue to mature and is expected to reach the same number of sales as new vehicles by 2025. In the past, this was a three-to-one ratio, where three new cars were purchased for every one used car. This has trickled down from the growth of the secondhand market for other vehicle purchases such as jets and yachts. It has become increasingly common for ultra high net worth Chinese consumers to purchase these vehicles gently used because of their reduced price from the approximately 20% loss in value and absence of high taxes associated with purchasing the vehicles new. Attitude shifts regarding secondhand vehicle purchases are expected to give rise to the prevalence of jewelry, handbags, and other luxury goods resale. China is poised as a greenfield for Tradesy-esque businesses, with this untapped resale market expected to grow in the same trajectory as the luxury market. If it will be anything like the US resale market, every new luxury good that is sold will hold approximately 3-4 times that transactional value in the resale market.
Demographic Shift Giving Rise to Resale Luxury
Resale represents the next generation of luxury in China and will play a significant role in spearheading its growth. Resale companies have only come into fruition in China within the past 2 years, largely precipitated by shifting demographics and changes in consumer sentiment – specifically, evolving finances, age groups, and attitudes. Many Chinese consumers find themselves with a significantly higher cost of living due to unaffordable housing, expenses associated with aging, and a slowing economy that has resulted in earnings that cannot catch up to expenses. Notably, there is a large population group of those born in the 1980s who are approaching an era where expenses associated with children are at their highest. However, the desire to own valuable, luxury items that are presentable and hold face has not eroded. Rather, consumers are seeking this at a more affordable price point – and this is one source of the increased openness to resale.
Generations born after 1990 have also become increasingly influential in China’s luxury sector. Being born into China’s economic era, young generations are the first for whom consumerism comes naturally. As a result, 79% of luxury spending in China comes from consumers under the age of 40. The younger generation also represents the group that has deviated most from the traditional sentiment that goods must be purchased new, with Millennial and Gen Z consumers in China showing significantly less resistance to secondhand luxury. In general, the younger generation places less emphasis on owning goods from the latest season and, instead, seeks good deals and timeless items while also appreciating smaller luxury treats such as shoes and small leather goods. Now, where the most expensive asset in China is an Hermes handbag, young consumers have exhibited willingness to rent such luxury items for mere minutes, effectively awarding renters a 35,000% increase in transactional value.
Attracting Consumer-to-Business Resale
In considering the resale market, the business-to-consumer (B2C) side is generally the focus. However, trends for the reverse, consumer-to-business (C2B), where consumers will sell secondhand goods to businesses, will also be crucial for the development of the resale market in China. With the rapidly aging Chinese population, wealthier individuals born in the 1960s and 1970s who have accumulated massive amounts of wealth due to Chinese privatization in the 1990s are beginning to let go of many of their luxury items as they no longer feel the need to own an abundance of material goods. This trend can already be seen in Japan, where the wealthy who have reached retirement age are now letting go of many of their luxury items such as gold and jewels, giving rise to a growing resale marketplace.
In a culture that has always been notoriously focused on saving face, Chinese consumers will remain committed to buying luxury. Luxury resale platforms are poised for growth in the double digits over the next few years and will be responsible for spearheading the luxury sector as a whole. The next leg of luxury is resale.