SHANGHAI — The fashion world is feeling the pinch of Chinese consumers’ changing attitudes. Mainland China’s New Year holiday sales grew at a double-digit pace this year, but the growth slowed from previous years against the backdrop of a tough antigraft campaign and a shift in consumer spending habits toward experiences rather than material goods.
This story first appeared in the February 8, 2014 issue of WWD. Subscribe Today.
China’s retail and restaurant sales over the weeklong holiday rose 13.3 percent to 610.7 billion yuan, or about $101 billion at current exchange, compared with the holiday period last year, according to the Ministry of Commerce. In 2013, the growth rate was 14.7 percent while in 2012 it was 16.2 percent.
This year’s growth is the slowest China has seen since 2009, when there was a 13.8 percent gain over the previous year.
Chinese New Year, also known as the Lunar New Year, festivities ended Thursday. It is one of the prime spending holidays in the country, when consumers spend big on gifts for relatives, friends and business associates. Big-ticket items are usually at the top of the list; however, this year there was a notable decrease in spending on luxury goods, the commerce ministry said, without citing specific sales figures.
Analysts attribute part of the decrease in luxury consumption to the anticorruption campaign initiated by the Chinese leadership, which has curtailed the purchases of expensive items traditionally given as gifts between business associates and government officials. Reflecting that trend, the sale of expensive alcohol fell nearly 70 percent in some Chinese cities, while revenues for high-end restaurants declined by nearly 20 percent in some areas, the ministry said. The government body noted that products that “are affordable with simple packaging” experienced highest sales.
The decline of luxury purchases can also be attributed to a change in consumption habits, analysts said. Chinese are opting to shell out more for “quality-of-life spending,” James Roy, an associate principal at China Market Research Group in Shanghai, said.
“Chinese consumers are increasingly choosing to spend their money on experiences rather than just things,” he said. “You are seeing higher spending on leisure activities, such as going out to the movies for people staying in the country, as well as much higher [spending] for outbound tourism.”
Nearly 5 million Chinese traveled overseas during Chinese New Year, up 12.5 percent compared with last year, the state-run Xinhua News Agency reported. According to the Chinese zodiac, 2014 is the Year of the Horse, which has led to a number of luxury players producing products featuring horses. Sales of horse-themed jewelry rose 35 percent in some shopping malls, Xinhua reported.
Christine Lu, a cofounder of Affinity China, which provides tailor-made overseas trips for wealthy Chinese, said luxury shopping is no longer the main interest of clientele traveling to cities like New York, Los Angeles or Las Vegas. Instead, the focus has shifted to investment opportunities, such as commercial and residential real estate.
“We have a group of 25 coming to L.A. and they want to look at real estate or go to a basketball game, more experiential stuff,” Lu said. “The sophisticated travelers are not all about shopping anymore. It is becoming more of an afterthought.”
Charles de Brabant, founder and chief executive officer of luxury consultancy Saint Pierre, Brabant, Li & Associates, said that, aside from Beijing’s anticorruption campaign, slowing luxury sales can be explained by a number of factors. Consumers are more price conscious and willing to wait to spend on big-ticket items overseas to avoid steep taxes on luxury products in China, and they are more sophisticated, looking for purchases that tap an emotional factor rather than merely buying for prestige or social status.
“This is all coming together,” de Brabant said. “And clearly the numbers are implicating that.”
He added that more midtier bridge and fast-fashion brands appear to be performing better because they offer consumers “more excitement.”
“Luxury brands are playing on a single emotional dimension,” de Brabant said. “For more-midtier brands, they can bring fun and excitement. Brands coming in that hit alternative emotional chords will have a better chance.”
Lane Crawford Joyce Group saw double-digit sales growth at its Lane Crawford, Joyce and ImagineX stores in Hong Kong and Mainland China over the holiday period, according to a company spokeswoman.
ImagineX said its portfolio of contemporary brands including 3.1 Phillip Lim, Marc by Marc Jacobs, Juicy Couture, Club Monaco, DKNY and Alice + Olivia performed particularly well.
“We saw strong consumer appetite this Chinese New Year with robust double-digit sales growth in Hong Kong and China which exceeded expectations. This was largely due to Mainland Chinese consumers spending both in Hong Kong and at home,” said ImagineX managing director Thomson Cheng.
A new and notable trend this year was the use of WeChat, a mobile instant-messaging service, to send virtual cash as gifts. Red envelopes, or “hongbao,” filled with money is a traditional gift during the Lunar New Year. According to Tencent Holdings Ltd., the Internet giant that operates WeChat, more than 5 million users collected so-called e-hongbao from more than 20 million virtual red envelopes. Recipients of the money can transfer it to their bank accounts. WeChat has become a new darling of digital marketing in China as brands try to use the platform to create more-targeted ad campaigns.
While the Ministry of Commerce has not released hard data for e-commerce sales over the holiday period, it said that online sales were strong.
Thibault Villet, ceo of Glamour Sales China, an e-tailer offering both full-priced and discounted luxury and fashion goods, said sales more than doubled compared with Chinese New Year last year. Growth came primarily from ready-to-wear, shoes, contemporary designer brands, jewelry and lifestyle products, he said, adding that the average basket per transaction increased 25 percent compared with last year’s holiday period.