Econintersect: McKinsey reports that China will consume about $27 billion (Rmb 180 billion) annually in luxury goods in another 4-5 years. That will comprise approximately 20% of $135 billion in luxury goods purchased worldwide. McKinsey based their estimate on surveys taken in China about one year ago. The surveys covered more than 1,500 luxury consumers. McKinsey says that the luxury goods markets in China have been growing rapidly, about 20% a year but slowing to 16% for 2009 because of the impact of the global recession.According to McKinsey, the wealth demographics in China are shifting and attitudes about consumption are changing as well. Not only will higher income groups be growing, but the Chinese upper middle class will grow rapidly as well and experience rapid growth in the next few years. According to McKinsey upper middle class incomes range from $15,000 to $30,000 annually.
From the McKinsey report:
At a time of rapidly rising incomes, widely available luxury products (and information about them), and shifting attitudes toward the display of wealth, more Chinese consumers than ever feel comfortable buying luxury goods. As a result, China’s love for them is moving down the economic ladder, creating opportunities and challenges for marketers accustomed to serving only the very rich. While wealthy consumers (with incomes above 300,000 renminbi, or about $46,000) will continue to account for a majority of luxury consumption, our research shows that the 13 million households in China’s upper middle class (incomes between 100,000 and 200,000 renminbi) offer the biggest new growth opportunity. They already account for about 12 percent of the market, and their numbers are growing rapidly: we expect to see 76 million households in this income range by 2015, accounting for 22 percent of luxury-goods purchases.
Interest in them is moving beyond handbags, jewelry, fashion, and the like. A growing number of Chinese luxury consumers are also splurging on spas and other wellness activities. Consumption is growing faster for such luxury services than for luxury goods: 20 percent of these consumers said they were spending more on experiences, only 13 percent on products.
McKinsey said that growing urbanization away from the largest cities is leading to a more diverse geographic distribution of luxury goods and services. Small cities are becoming large enough to see a rapid expansion of luxury sales. For areas such as Qingdao and Wuxi, McKinsey expects luxury sales to triple over the next five years. Today luxury goods and services are more concentrated in large cities such as Hangzhou and Nanjing.
According to A Plus, Goldman Sachs has an even higher target for luxury in China: 29% by 2015. Goldman is reported to have projected that luxury consumption in China will grow by 2.4 times from 2010 to 2015. China will become the second largest luxury market by 2015. Second to the U.S.? No, second to Japan.