consumer behavior, premium products

Only 20 years ago, Chinese customers accounted for a very small share of global luxury sales. Today, one luxury item out of three purchased in the world is bought by Chinese consumers.

And, out of the 100 billion euros, or $111.5 billion, that Chinese consumers spent in 2015, three-quarters were spent overseas and more than a third (35 billion euros, or $39 billion) in Europe, which represents a major opportunity for local luxury markets worldwide.

In this context, Paris has become the capital of luxury shopping for Chinese people in 2016, ahead of the main Asian capitals of luxury, Hong-Kong (second) and Tokyo (third). Attractive exchange rates play an instrumental role in this phenomenon, as the weak Euro generates cheaper prices for Chinese consumers. But there are other influencing factors. For 39 percent of surveyed people, the variety of products is a key criterion. For 31 percent of them, the most important factor is the country of origin of the brand. Last, for 30 percent of surveyed people, a premium (and often European) consumer experience is of paramount importance.

These Chinese consumers, who dictate the law on the luxury planet, are quickly evolving and changing, which will lead the luxury industry into a new age that is here to stay.

Local customer bases and the Chinese “Sugar Generation”

This new age is first of all characterized by the end of Chinese people’s strongly growing luxury expenditure. This phenomenon leads luxury brands to address — or get back to — more local customer bases, through in-store selling rituals meant for them and select events, such as vernissages, parties, dinners or exclusive opportunities to discover new products. Brands must develop increasingly local and customized offerings, in order to better address these new customers.

In parallel with the sales decline that began last year, a new Chinese generation — the so-called “Sugar Generation” — is now taking the lead on luxury consumption. Born in the Eighties, in a society that already knew the capitalist system, the Sugar Generation is eight times as likely to hold diplomas as the previous generation. It knows on average thrice as many brands as the elders. Better educated, more learned than their parents, the young adults of the Sugar Generation are more sophisticated in their luxury consumption. Authenticity is at the heart of their concerns; time for showing off has passed. By 2020, 65 percent of Chinese consumers will be born in the 1980s-1990s. The impact of their choices and perspective on the luxury universe will be tremendous.

With the increasing importance of these new “upper-class” adults, luxury must adapt and, paradoxically, get back to more traditional values: luxury for oneself, arts and crafts. “Show-off” luxury becomes partly obsolete. With the generational change, the purchasing experience will become more important than its symbol of social status.

Tradition…and digital

In order to better know your customers, be they local customers — in Europe and the U.S. for instance — or young Chinese adults of the Sugar Generation, digital is the right tool. Digital channels make it possible to create a connection and generate exchanges with customers and, nowadays, to sell: 42 percent of the luxury consumption should come from digital channels by 2020. Those are as many opportunities to collect data and propose, in stores, the products that best meet customer expectations.

Two trends are therefore shaping the new luxury age, two trends that seem contradictory at first glance: authenticity and the digitization of purchasing behaviors. Traditional fashion brands do not want to miss the boat of tomorrow’s fashion. To engage customers, you need to offer a perfect blend of tradition and innovation. Two trends, two trumps to address luxury in 2016.

Olivier Abtan is a partner at The Boston Consulting Group in Paris and heads the luxury sector for the firm.

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