Luxury sales rebound as millennials snap up cosmetics, bags, says report

China’s luxury goods market is back in fashion. Domestic sales of Gucci handbags to Chanel cosmetics, sluggish in China for years, rose at the fastest pace last year in more than half a decade and are poised to consolidate the gains in 2018, according to a report released Wednesday by consultancy Bain & Co.

That could provide a major benefit for brands targeting the world’s top luxury spenders, though who benefits most will depend on which brands are able to lure China’s big-spending youth, who are now the driving force in the market.

Sales of luxury goods in China hit 142 billion yuan ($22.07 billion) last year, up about 20 percent from a year earlier, Bain & Co said.

That was the fastest growth since 2011, when luxury sales started to be hit by slower economic growth and a crackdown on corruption.

China’s shoppers are the biggest spenders worldwide on luxury products, making up 32 percent of the 262 billion euros ($308 billion) global market last year and propelling France’s LVMH, Burberry and Gucci owner Kering. China’s domestic market alone makes up 8 percent of global luxury sales, Bain said. Chinese shoppers still make three-quarters of their luxury purchases overseas.

“It’s essentially been a flattish market for the last five years; now 2017 is plus 20 percent, that’s an amazing rebound,” said Bruno Lannes, Shanghai-based partner at Bain, adding lower pricing and government support were key drivers.

The sharp rise, with particularly strong growth for women’s clothing, jewelry, cosmetics, shoes and handbags, followed weak growth in 2016 and dips in 2015 and 2014.

China has been pushing for greater domestic spending, cracking down on shopping agents known as daigou bringing products into China from overseas, and cutting high tax rates on imported luxury goods.

Bain said that China’s luxury market should also see robust growth this year “fueled by millennials and readyto-wear” attire, although the growth rate would likely slow to “low-mid teen” levels, given the fast growth in 2017.

The revival is being driven by Chinese shoppers aged 20 to 34, who generally prefer ready-to-wear and fast fashion over more traditional design, helping propel new areas like luxury casual wear and sportswear.

“This is a new China coming in as opposed to the old China coming back,” said Lannes.

That shift creates a challenge for more traditional brands like Prada, which is having to play catch up with newer rivals like Coach.

Others like Hermes, France’s LVMH and Kering are seeing a revived appetite from China, helping boost their global sales last year.

Luxury spirits makers, including China’s own Kweichow Moutai and France’s Remy Cointreau, saw a gain in China sales, too.

Lannes added the fast growth would see winners and losers emerge, depending on who could crack the code of China’s youth.