Report: Luxury spending to drop in Hong Kong and mainland China as difficulties mount

While Chinese customers have gotten more comfortable with buying luxury items online, a new report finds that China's economic slowdown, ongoing trade disputes, regional challenges, and the recent COVID-19 coronavirus outbreak are all expected to weaken consumer confidence in China and Hong Kong.

Ruder Finn has worked with Consumer Search Group to publish The 2020 China Luxury Forecast. Surveying 1,599 respondents from China and 501 in Hong Kong, the forecast highlights the appetite for luxury items among Chinese and Hong Kong consumers amidst a trying time for the region.

While 44% of Chinese and 32% of Hong Kong respondents said they were planning to spend more in the upcoming 12 months (a similar result to the survey conducted last year), one-tenth of Chinese consumers and 20% of Hong Kong respondents said they planned to spend less over the same period. This marked a distinct change from the 6% for Chinese consumers and 12% for Hong Kong consumers that said they had planned to spend less last year

In fact, compared with 2019, the proportion of consumers planning to spend less for the next 12 months was higher in almost every product category, except for beauty and cosmetics in China. Consumers stated they would reduce spending on automobiles, watches, handbags, and electronics.

Over the past 12 months, Hong Kong consumers recorded spending about HK$167,400. Meanwhile, Chinese consumers spent on average about RMB 330,400 on luxury items. However, consumers from third-and-lower-tier cities spent about RMB 393,900 last year, more than their counterparts living in first-tier (RMB 344,100) and second-tier (RMB 275,000) cities.

But though the outlook for the next 12 months is not as good as last year’s, respondents from Hong Kong and China were more comfortable with spending online.  When choosing online shopping platforms, more than half of the consumers in Hong Kong preferred buying through a brand's official website.

For Chinese consumers, Tmall was the top choice with 60% of respondents saying they had bought luxury items on the platform. At the same time, the rate of shopping through official brand websites was quickly increasing, reaching 48%, with JD.com ranked third. To tap into opportunities, more than 150 luxury brands worldwide have set up flagship stores on Tmall's Luxury Pavilion platform. In addition to working with leading platforms, a growing number of luxury brands with rare and premium offerings were stepping up their own eCommerce businesses through official websites and WeChat mini-programmes.

This year’s report has also included an inaugural study of local luxury shopping, highlighting that Hong Kong consumers spent 44% of their luxury budget locally, while Chinese consumers spent 31%.

"Localised luxury consumption in China continues to rise as a result of the proactive initiatives by the Chinese government to promote local consumption. These include reducing import duties and VAT rates, combined with stricter customs inspections, along with the initiatives among luxury brands aimed at narrowing price gaps at home and abroad, and improving sales and after-sales services,” said Simon Tye, executive director of Consumer Search Group Hong Kong.

“Looking ahead, new opportunities for boosting local consumption are expected to emerge in terms of offering products tailored to Chinese culture and aesthetics, as well as more customised member services," he added.

But respondents still went abroad for shopping. In terms of luxury shopping-destinations, the top three for Chinese consumers were China, Hong Kong, and Japan, while Hong Kong consumers preferred shopping in order of Hong Kong, Japan, and Europe.

Asked which categories they had spent the most money on, both Chinese and Hong Kong respondents said luxury clothing and jewellery were their favourite items. Over the past 12 months, more than 60% of Hong Kong respondents and 70% of Chinese respondents said they had purchased luxury clothing and jewellery.

Hongkongers seem more willing to spend on luxury experiences than their mainland counterparts, as about 56% of Hong Kong respondents said they had experienced fine dining compared to 35% of Chinese respondents. Moreover, 55% of Hong Kong respondents said they had enjoyed luxury travel compared to 48% in China.

Another topic tackled by the survey is age. Brands and marketers have started to target Generation Z (aged 21 to 25) consumers, so the survey has also asked the age when consumers made their first luxury purchase. On average, Generation Z consumers bought their first luxury item at 20 years old or earlier, two to three years younger than reported by millennials. What’s more, Hong Kong consumers purchased their first luxury goods at a younger age than those living in China, with 9% of the respondents saying their first luxury item was purchased before the age of 18.

Lastly, the report suggested that Chinese consumers valued influencer and celebrity recommendations more than consumers in Hong Kong. Nearly 80% of respondents in China believed the influence of celebrities and influencers was becoming more important, especially for people in third-and-lower-tier cities. Luxury clothing, beauty and cosmetics, and jewellery items were the top three categories that Chinese consumers felt were most influenced by celebrities and influencers.

“Online purchases and local consumption have become key growth engines for the Chinese luxury market. In addition, as the market gravitates toward lower-tier regions after a decade of development, third-and-lower-tier cities have shown strong performance and with great purchasing power,” commented Gao Ming, senior vice president and managing director, luxury practice Greater China at Ruder Finn Group.

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