LONDON — Chinese Millennial and Generation Z consumers are set to become the biggest driving force in luxury consumption by 2025.
According to the latest report by the Chinese luxury retailer Secoo and the data company Tencent, Millennial and Generation Z consumers will account for 50 percent of the country’s discretionary disposable income. Currently, 48 percent of China’s luxury shoppers are under 30 and they account for 34 percent of the country’s disposable income.
The increasing power yielded by younger, digitally savvy shoppers in the luxury market is also putting more pressure on brands to establish an online presence in the region and communicate with customers in new ways, via digital media.
Young luxury shoppers continue to veer toward online shopping: 42 percent of Chinese Millennials and 34 percent of Generation Z consumers shop online, according to the report, as opposed to 28 percent of Baby Boomers.
E-commerce accounted for 8 percent of total luxury sales in China this year — a 12 percent increase from 2016. The figure is forecasted to steadily rise to 13 percent by 2021.
Digital media also continues to play a key role in driving sales, with platforms such as Weibo and WeChat cited as the main sources used by customers to find information and insights about luxury brands.
Eric Chan, the retailer’s chief executive officer, said in addition to establishing a presence on social media and their own e-commerce channels, brands should also think about speaking to the customers in a meaningful way and providing unique experiences beyond the sales transaction.
“Millennials and the younger Generation Z are set to change the balance of power in Chinese luxury consumption over the coming years and how brands respond to them will be important to their future success. While it is critical to engage digitally and through omnichannel services, these younger customers also want experiences that excite and speak to them as individuals, their social values and growing appetite for exclusive experiences,” said Chan.
“Secoo is already tapping into this growing demand for diverse offerings in an increasingly digital environment with its integrated online and off-line strategy, including our physical off-line ‘experience centers,’ where customers can indulge in services including yoga, photography studio and tea drinking, as well as personalized shopping at our boutique hotel partners.”
The company has six experience centers across China and Malaysia and has plans to open an additional four, in addition to rolling out customized suites in hotels where customers can try sample merchandise.
Such initiatives are focused on fostering customer loyalty rather than increasing sales, as younger consumers value convenience more than previous generations, so services such as click and collect or personal shopping are becoming increasingly important for retailers.
Given the growing dominance of Chinese consumers — China is the second biggest luxury market after the U.S. and domestic luxury consumption is in growth mode after the country’s recent cuts on import tariffs — international e-tailers are also keen on tapping into the market. Earlier this year, Farfetch secured a $397 million investment from JD.com in order to scale its business in the mammoth $80 billion Chinese market. As part of the deal, the London-based retailer is teaming with Saint Laurent to integrate the collections from its stores in China onto the Farfetch platform, to offer 90-minute delivery in China via Farfetch to customers in Shanghai and Beijing, followed by Hong Kong.
Adrien Cheng and his partner Clive Ng are also targeting the new generation of luxury consumers in China with their latest investments.
As reported, C Ventures — the newly formed hedge fund by Ng and Cheng — has taken a minority stake in Bandier, the community-building, experiential fitness retailer in October. It also took a minority stake in Jefferson Hack’s creative and editorial agency Dazed Media, which is known for focusing on youth culture and is targeting a number of Gen-Z-focused brands such as the web sites Beautycon and Galore.
“What we’re thinking of is a very big paradigm shift in the market, especially in the Millennials and Gen Z. We are starting to build a global, connected kind of ecosystem that surrounds Millennials, not just them, but younger Millennials, the Generation Z as well,” Cheng told WWD at the time.