Luxury Consumption In China

China’s consumption rate has been growing at an exponential rate over the past decade and the country’s increasingly wealthy consumers have become brand-obsessed. The top five brands in 2011 for Chinese consumers were Louis Vuitton, Chanel, Gucci, Dior and Armani. Recent market research indicates this trend won’t show any signs of slowing. According to reports from leading consulting firms McKinsey and Bain, Chinese consumers will account for more than 20% of global luxury consumption by 2015 and have already surpassed Americans as the world’s biggest luxury spenders. And compared with the Japanese, who started luxury shopping sprees during the economic boom in the late ‘80s, the Chinese are consuming luxury on a greater scale and at a higher level of intensity.

Many Chinese consumers new to the luxury market choose to start their luxury shopping experiences by purchasing the most iconic items under the most famous brands (often completely bypassing lesser known labels). In fact when it comes to the actual selection of goods, Chinese consumers value the perceived enhancement of utility over the aesthetics. “For luxury consumption, it is mostly about the brand name. The design itself really does not matter much, as long as it is not viewed as ugly by the mass,” said one of the luxury shoppers during an interview.

“Sometimes you see those new bags in Vogue that are actually really ugly. But somehow celebrities all over the world favor them and your friends around you start to carry them. It somehow makes me end up buying them as well, even though I still think they are ugly,” another interviewee commented.

It appears that the more expensive an item it, the more desirable it becomes. “I do not like Prada or Gucci very much because they are often on sale, sometimes 50% off! In this way, they are not solid in value and are not good items for investment. Hermes and Chanel never have sales and their items are thus worth much more,” said one of the interviewees. Three other interviewees provided very similar comments against brands such as Coach, whose average prices are relatively lower compared with other luxury brands such as Chanel and Hermes. According to qualitative market research, many of the more accessible brands are often considered as entry points for the “beginners” among the luxury consumers and are thus avoided by the more sophisticated consumers, who would not purchase any goods except for the “It Bags” (globally popular brand-name bags) or “limited editions.”

While luxury consumption is a way to buy social capital through exclusivity, it is also a way for consumers to emulate public figures and just fit in with their more fashionable friends. The top Chinese celebrities are often the spokesperson for many high-end luxury fashion houses in China and many of them appear in public only in the latest fashion designs from top labels. For example, actress Bingbing Fan is one of the most prominent celebrity figures and is widely viewed as a trendsetter for women’s fashion. An interviewee noted, “I used to like Prada wallets a lot because their vibrant colors and girly design. But many girls around me started to use those simple and solid Hermes wallets, which are seen as the most prestigious and expensive. So I ended up using it as well in order not to feel left out.” The overriding concern here is a fear of being left out from the “ingroup.”

And it’s not just the super rich who are consuming these elite brands. Average consumers, under social competition and peer pressure, often feel urged to make luxury purchases in order to maintain a desirable social status and image even if they can’t exactly afford them. “I cannot afford any of the luxury stuff but I just want to look good when I am around people who are rich and powerful” says one of the interviewees. The Chinese also have a deep respect of reciprocity when it comes to gift exchanging. Receivers are encouraged to send gifts of a similar price tag to fully demonstrate their sincerity, even at an extraordinary financial cost.

On the other hand, not all luxury consumers are succumbing to the social pressures and expectations of contemporary China. From my research, it seems that the more experienced and sophisticated consumers show interest in a much broader range of brands, some of which have minimal brand visibility and recognition in the Chinese market. This group of consumers displays a relatively high level of confidence in their own tastes and stresses the importance of the actual design and aesthetics of the goods. Their confidence allows them the freedom to make purchasing choices based on personal preference instead of on a public one. However with an increasing group of wealthy, class-conscious, and fashion savvy consumers, don’t expect the Chinese fixation over Prada and Gucci to evaporate any time soon.

Note: This is an edited excerpt from Gabrielle Chen’s thesis on luxury consumption in China.