What is going on with affordable luxuries?
The affordable luxury market in China was relatively insignificant until only a few years ago. The situation today could not be more different. Mid-end brands have experienced rapid growth along with significant retail expansion, an increase in e-commerce sales and a large following of nouveau riche and long-established legacy customers alike.
According to Forbes magazine, the average annual household income of the Chinese luxury consumer is $83,361. However, levels of income vary enormously in China and the Demand Institute has identified an emerging class of ‘Connected Consumers’ most of whom have an annual income of just $10,000 to $20,000. Connected Spenders are defined by their willingness to spend their disposable income and their ability to spend it, which is gauged by whether or not they are connected to the internet. The Demand Institute estimates that there are now 370 million people living in Connected Spender households. This number is expected to rise to 590 million by 2025.
Traditionally, established European luxury labels have dominated the market in China and, out of principle, they never discount their products or promote affordable alternatives. However, we are now seeing more brands promoting a wider range of ultra, premium and affordable luxury items. For example, Tiffany’s offer rings for $80,000, necklaces for $5,000 and tie clips for $200. When planning your marketing strategies for Chinese consumers, think of your customers not as haves and have nots. Think haves and have yachts. Here are some important trends that we have identified:
“think of your customers not as haves and have nots. Think haves and have yachts”
These are more sophisticated customers who have had money for a long time and no longer feel the need to flaunt it in order to assert their social status. With this confidence, they are more open to experiment and try new brands, new styles and are not embarrassed to be seen with affordable luxuries. They want to be seen as unique individuals and not to be pigeonholed.
Recent entrants to the middle classes, these customers want to learn how to cultivate a more refined lifestyle. They often do this with combining mostly affordable luxuries with a few premium luxury items. For example, a mid-range dress with an expensive handbag and understated shoes.
Bain & Company estimates that Chinese visitors spent as much as 209 million yuan on luxury goods overseas in 2014. This means that Chinese consumers spent abroad three times more than they spent locally. Chinese travelers are the most prolific in the world and they are predicted to take 150 million outbound trips by 2020. These are mix of business and pleasure travelers as well as students studying abroad and while they’re overseas they will be exposed to new or unknown brands which they are likely to seek out once they return home.
Chinese tourists are boosting luxury sales all over the world
Forbes identifies Chinese luxury consumers as typically being younger than their Western counterparts. They estimate that the average age of Chinese luxury consumers, at home or abroad, is 33.1 years. And more than 80% of all Chinese luxury consumers are between the ages of 25 and 44. Indeed, those consumers who live at home and are subsidized by their parents can spend 80 to 150% of their income on consumer products. Not only are these consumers incredibly valuable today but, if you succeed in winning them over as fans now, you will have a loyal customer for decades to come.
美分 or měi fēn is often used to refer to Chinese netizens who are seen to love America and all things American but we can also see a growing trend among Chinese luxury consumers becoming more interested in American brands and the American lifestyle. Brands such Michael Kors, Coach and Kate Spade are all reporting strong growth.
It is important to pay attention to these trends as China’s economic slowdown, the ongoing anti-corruption drive and the recent devaluation of the yuan are all going to have a negative effect on the sales of premium and luxury goods. This will, in turn, exacerbate the trends described above. Social Brand Watch recommends that you offer a variety of pricing models and brand positioning that caters to the varying needs of these heterogeneous customers.