A market survey released by US consulting firm Bain and Company showed Chinese mainland sales of luxury goods last year increased 23% compared to 2009 (and by as much as 30%, if calculated in Euro).
Wall Street banker Goldman Sachs was equally as upbeat on 2010 luxury sales - which it estimated at US$6.5 billion - putting China on top of the world for major brand sales, after three consecutive years of double digit growth.
Zhu Mingxia, Director of the Research Centre for Luxury Goods at Beijing's University of International Business and Economics, went still further. He declared at last December's Summit on Luxury Market Trends that the country had overtaken the US as the world's second largest consumer of luxury goods and has hopes of overtaking Japan as the world number one in three years.
More leading brands are tailoring their goods and services to suit the needs of Chinese consumers.
Herm s launched its Mainland brand Shang Xia and opened a dedicated flagship store in Shanghai last September. The French fashion house also marketed 100 limited edition mini Birkin bags. This 14 cm cuckoo red handbag was designed specially for Chinese women going to parties and receptions.
Porsche also designed a limited edition car with a price tag of US$225,000 for the China market. The luxury car maker believes China is its fastest growing market and has overtaken Germany as its second largest market.
Top Porsche executives believe China is set to become the company's largest market by 2015.
Competitor BMW announced recently that its volume sales in China in the first 11 months of 2010 were double those of 2009.
Meanwhile, Audi registered a 50% increase in China sales in the corresponding period. Audi already has the largest Mainland market share, but its Marketing Director is still optimistic that real prosperity in the China market has yet to come.
Lower age luxury consumers
Branded bags are seen everywhere in Beijing.
The study by Bain and Company shows compound growth rate of individual categories in China's luxury goods market reached double digit in 2010.
In the watch category, mid-range timepieces priced at between Rmb25,000 and Rmb50,000 registered the fastest growth, with sales soaring 35% last year.
This was closely followed by handbags and other leather goods, with sales hitting growth rates of 25%, year-on-year. Sales of cosmetics, men's and women's wear, jewellery and shoes increased 20%.
What merited attention was the lower average age of luxury goods consumers, enhanced by gift giving.
The World Luxury Association's 2010-2011 report showed the age of China's youngest luxury consumers dropping to 25 in 2010 from 35 in 2007.
Watches are favourite luxury items.
In the next three to five years, people in the 25 to 30 age group are expected to form the mainstay of the country's luxury consumers.
However, luxury spending is only partly on gift giving, especially for political and business purposes.
More and more people are using cash vouchers instead of directly offering expensive watches and bags as gifts these days, which means the recipients decide what gifts to buy. This increases the incentive for major brands to boost their brand appeal.
Consumers in the luxury market include well-heeled families with assets worth millions of US dollars, but also the expanding middle class as well as increasingly significant young adults.
Although people are still worried about inflation and a property bubble, the survey shows that only 10% of the consumers interviewed said they planned to cut down on luxury consumption.
Bain's index is the highest of recent years. Consumers with monthly disposable incomes of over Rmb50,000 spend the largest amount on luxury goods and are more confident in their consumption pattern.
Consumption of luxury rises
The luxury spending behaviour of Chinese consumers is undergoing a major change, an important gauge for future trends in the market.
The propensity for sales is not matched by recent history, since total spending on luxury goods still accounts for less than half of their total spending.
Yet sales figures of luxury goods for 2009 show Mainland sales grew 14% against an increase of only 8% in sales overseas (including Hong Kong and Macau).
Chinese consumers preferred shopping abroad in the past, but leading luxury brands have been trying to change that by improving their services to local consumers, such as ensuring that new models are marketed in China and Europe simultaneously and that prices are the same at Chinese and overseas stores.
To better satisfy the demands of Chinese consumers, some luxury brands are opening flagship stores in first-tier cities, striving to provide localised after-sales services and even transferring their craftsmen to the Mainland.
The Bain survey indicated that Chinese consumers saw a great deal of need for improvements in services provided by local luxury stores.
More than 50% of consumers thought stores needed to improve customer relations, provide better product maintenance and cleaning as well as other after-sales services.
LV is one of the best-loved luxury brands.
Experts found it surprising that the total spending of high income earners in China's second- and third-tier cities on luxury goods actually exceeded that of consumers of the same income level in first-tier cities.
Respondents to the survey, with a monthly family income of over Rmb100,000 in second- and third-tier cities, spent Rmb186,000 on luxury goods per year on average against an annual spend of Rmb166,000 for families of the same income group in first-tier cities.
For top luxury brands, cities like Shenyang, Hangzhou, Wuxi and Chengdu are high growth markets.
Hangzhou and Chengdu both hosted luxury goods shows in 2011. Many exhibitors said they never expected to see such high spending power in these cities, adding that consumers are more willing than those in other cities to accept new things.
Emporio Armani officially opened its online store on the Mainland in early December 2010.
Also, following the official launch of the online store Yoox, a world-renowned luxury e-retailer, many leading international brands are looking to high-end B2C portal development to capture China sales.
Towards the end of 2010 there was more news of developments in the market. Online store Shangpin.com won the exclusive rights to luxury goods from Paris-based Van Cleef and Arpels and Mont Blanc products from Swiss-based Richemont Group.
The website is to introduce perfumes from more than 30 top brands, including Burberry, Lanvin, Loewe, Prada and Versace. Its business covers bags, leather goods, clothing, watches and jewellery.
Online store 360buy.com, the biggest local cyber outlet, announced its plan to open a luxury online store. More luxury goods are destined to find their way onto China's online sales networks.
According to the China Internet Network Information Centre, China's online sales turnover amounted to Rmb250 billion in 2009 and was expected to exceed Rmb430 billion last year.
Over 60% of consumers interviewed for the Bain survey said they were using the Internet as a general channel for obtaining information on luxury goods and mainly made purchases from third-party or foreign websites.
Analysts point out that young Chinese people are more willing to access information on luxury goods and that one of the most effective ways to tap these consumers is to invest in the opening of brand name websites or other social platforms to get a head start in the market.
From special correspondent Shen Xue, Beijing in hktdc.com
