Although China’s luxury sales have not yet returned to 2021 levels, industry analysts and financial reports from key brands indicate that there are new growth potential in comparison to pre-pandemic tendencies.

The current luxury conglomerate, LVMH, released its 2023 results on Thursday, stating that over 30% growth was seen in China in December in the fashion and leather goods categories.

According to the company’s data, more Chinese consumers are purchasing luxury goods domestically, even though some are returning to foreign countries.

“Regarding the size of stores in China … there are twice as many Chinese customers as in 2019,” Bernard Arnault, chairman and CEO of LVMH, said on an earnings call, according to a FactSet transcript.

“It means that the domestic purchase in China has grown significantly, so we have to meet that,” he said.

According to consultancy firm Bain & Company, the personal luxury market in mainland China increased by almost 12% last year to reach over 400 billion yuan ($56.43 billion).

Bain anticipates that the domestic luxury market will continue to expand in the upcoming years, despite the fact that it hasn’t yet returned to 2021 levels because of low consumer confidence and the resurgence of some luxury purchasing abroad.

According to Weiwei Xing, a partner at Bain’s consumer products and retail practices in Greater China based in Hong Kong, luxury purchases in mainland China made up approximately 16% of the worldwide market last year and are predicted to reach at least 20% in 2030.

“All of that data points to the importance of the Chinese luxury consumer and the China market,” she said.

Owner of Cartier, Richemont, reported earlier this month that during the three months that concluded on December 31, sales increased by 25% in Hong Kong, Macao, and mainland China.

Burkhart Grund, the company’s CFO, referred to the Chinese market as “rebuilding” during an earnings call, citing the protracted real estate downturn and the gradual rebound in Chinese consumers’ travel abroad.

Due to a general slowdown in economic growth and uncertainty about future income, Chinese consumers have been cautious to spend in recent years.

According to Xing from Bain, luxury firms are increasingly depending on internet platforms to guarantee consumer involvement. Companies that performed well in 2023, she continued, offered luxury products with characteristics that were regarded investible and would last over time.

The Bain analysis stated, without naming names, that sales of numerous niche brands and around half of the top brands have recovered to 2021 levels.

“Niche brands that have consistently invested in building brand desirability over multiple years have experienced success,” the report said.

One growing area for businesses vying for a piece of the Chinese consumer pie is bedding and fine linen.

Based on data from PitchBook, there have been at least four investment agreements in the category in the past 18 months. The most recent transaction on record was investors led by Ding Shizhong, the head of Anta, a Chinese sportswear firm, purchasing the upscale Italian mattress company Frette in August.

“Consumer attitudes toward bedding products are gradually changing, with more consumers willing to pay for high-quality bedding and placing greater emphasis on product quality, functionality, and additional services,” said Ashley Dudarenok, founder of ChoZan, a China marketing consultancy.

In response to consumer demands, she said, local home textile firms “have been actively pursuing ‘technological innovations’ and exploring the high-end bedding market.”

The market’s potential is yet largely unexplored, though.

Chinese consumers now make up approximately 5% or less of the worldwide market for high-end bed and bath textiles, whereas Americans make up well over 40% of the industry, according to estimates from the Beijing-based consumer research centre of venture capital company ZWC Partners.

According to their analysis, the bed, bath, and textile sector’s premium and reasonably priced Chinese section was only expected to be worth $700 million in 2023—a negligible portion of the over $10 billion domestic bedding market.

(Adapted from CNBC.com)

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