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Luxury goods consumption booming in lower-tier cities with younger consumer base, male consumers and mobile entertainment the buzzwords

Deloitte launches Deloitte-SECOO CIIE Blue Paper 2019

Published: 16 November2019

With China residents' incomes expanding faster than its economy, and the continuous narrowing of the country's urban-rural income gap, consumption has remained the number one driver of China's economic growth for five years in a row. Favorable policies rolled out by the government, the continuous release of the potential of lower-tier city consumption, as well as the implementation and promotion of new technologies, have fueled the rapid expansion of the Chinese luxury goods consumption market, both online and offline. On 6 November, Deloitte released the Deloitte-SECOO CIIE Blue Paper 2019, which analyzes luxury goods consumption in China's lower-tier markets.

According to the report, the global luxury goods industry began to recover gradually in 2017 after a multi-year downturn. In recent years, China has continued to lead growth in the global luxury goods market. In 2018, Chinese citizens spent USD145.7 billion on luxury goods, up 7 percent year-on-year and accounting for 42 percent of the total global luxury goods market of about USD347 billion.

There is a rising trend of luxury goods consumption in the lower-tier market. 1st- and 2nd-tier cities account for more than half (56 percent) of total luxury goods consumption, but 3rd-tier and lower-tier cities exhibit strong growth in spending as well as purchasing power. According to online consumption data collected by SECOO over the past year, among the various city tiers, 3rd-tier and lower-tier cities swept the top 10 rankings in annual purchase frequency, the percentage of customers with repeat purchases, and the percentage of customers with three purchases.          

"A younger consumer base, male consumers, and mobile entertainment are the buzzwords in luxury goods consumption in the lower-tier market. As social media continues to enhance brand exposure and consumer experiences continue to be optimized and innovated, the consumer base for luxury goods is becoming younger," says Deloitte China Consumer Products and Retail Sectors Consulting Partner Grace Ling. "Data reveals that more than 50 percent of online consumers are aged between 18 and 30. The post-90s generation has become the major online consumers. Compared to 1st-tier and 2nd-tier cities, online consumers of luxury goods in lower-tier cities are significantly different in terms of their consumption characteristics and daily preferences. Among consumers in lower-tier cities, young males under the age of 30 account for a relatively higher proportion and are more willing to spend on men's apparel, men's footwear, 3C digital products, and beauty and skincare products. Meanwhile, consumers in lower-tier cities have more leisure time to spend on movies, group buying, and mobile social and entertainment."  

The survey also found that online consumers of luxury goods in lower-tier cities are more willing to spend on men's apparel, men's footwear, 3C digital products, and beauty and skincare products, as reflected by the percentage of sales of different types of products by tier of cities. Consumers in 1st-tier cities spend more on traditional luxury goods such as bags, watches, jewelry, and women's apparel/footwear. In terms of brand preferences, consumers in 1st- and 2nd-tier cities are more interested in niche or new labels in low-key luxury, whereas lower-tier city consumers focus more on classic luxury brands.

Profile analysis indicates that there are three representative types of luxury goods consumers in lower-tier cities, namely smart youths, trendy ladies, and business professionals. They have distinct consumption characteristics and preferences. Smart youths are keen on skincare and focus more on different types of skincare brands; trendy ladies focus on quality and prefer mid- to high-end clothing and luxury brands; business professionals are fashion fans who show an interest in a wide range of brands, including mid- to high-end clothing, handbag and fast fashion labels.               

Factors influencing purchase decisions vary among these three types of potential consumers. Smart youths, who care particularly about their looks, focus most on the packaging and color of products, and look at cost-performance ratio. Trendy ladies focus on the overall effect given by products, such as beauty effects and styling, and are attracted by exquisite packaging. Business professionals focus most on their overall style as well as shopping environment and shopping experience.                    

"For a brand to succeed, it needs precise marketing using multiple touchpoints and big data refined customer profiles. With rapid growth of luxury goods consumption in lower-tier cities, it is imperative to implement differentiated strategies in cities of different tiers," says Deloitte Asia Pacific Consumer Products and Retail Sectors Leader Zhang Tianbing. "Big data tools and techniques facilitate accurate positioning and precise profiling of luxury goods consumers across multiple dimensions. Through profiling consumers in the lower-tier market, livestream platforms will become the new battlefield for luxury brands to further develop their customer bases among young people and in lower-tier cities. As consumers in lower-tier cities have limited opportunities to purchase luxury goods through offline channels, they are more accepting of online channels. Consumers in 1st- and 2nd-tier cities have a relatively diverse array of choices and will need multiple touchpoints to guide their shopping journeys. Therefore, digitalized omni-channel networks will allow better observation of spending behaviors through a breadth of touchpoints and deepened coverage of the consumption journey to achieve precise luxury goods sales and consumer management."

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