Continued and accelerated growth of the number of very wealthy households with annual disposable income of about US$163,000 (RMB 1 million) and middle-class households above US$8,170 should mean brisk business for big brands. LVMH and PPR, the respective owners of Louis Vuitton and Gucci, must take a lot of pleasure in seeing their products adorning affluent Chinese shoppers across the country.
However, some status-conscious consumers have begun to shun flashy brands in favor of more nuanced luxury; handbags with huge labels are no longer “in”. Is the market simply moving up the quality totem or has consumer motivation changed?
One driver of luxury spending to date has been its convenient application as a means of gaining “face”. Face is a dual concept in Chinese culture that encompasses an individual’s moral character and reputation as well as the prestige gained from wealth, position or power. This has been nowhere more apparent than in the ostentatious displays of wealth by rich government officials, eager to fortify their social standing through loud displays of success.
Such Chinese consumption habits are starting to change. Affluent individuals are seeking out more refined luxury items; meanwhile, the Communist Party has launched a clampdown on public displays of wealth by officials amid social disquiet.
China’s next luxury trends will be heavily influenced by a small demographic of “tenured” shoppers (those who purchased their first luxury product more than 10 years ago) who are establishing a new protocol for China’s elite based on discretion, sophistication and exclusivity. These consumers increasingly prefer low-key luxury to conventional status symbols. They enjoy grand pianos and antique cars, and brands that emphasize craftsmanship like Bottega Veneta and Breguet watches.
In fact, in a study earlier this year by consultancy McKinsey, over half of this group agreed that “showing off luxury goods is in bad taste”, a noticeable increase from only 37% in 2010. As this new value system trickles down, flashy displays of wealth may actually cause consumers to lose, rather than gain, face.
The trend towards “stealth wealth” or “‘post-luxury’ luxury” embodied by these new consumer preferences underscores a key truth about modern-day China: There is hardly a coherent paradigm of success because the social status hierarchy is still under construction. In such an environment, people’s values must evolve to keep pace with consumerism, and there are several ways this can occur.
New values may be propagated from the top down, as with Chinese Premier Li Keqiang’s crackdown on lavish spending, or absorbed from outside influences, which likely also influenced the recent trends in luxury consumption. Companies play a role as well in articulating social values by asserting that their products are essential to the consumer’s ideal life. Celebrity sponsorship, product placement and lifestyle branding all contribute to this end.
In fact, marketers 100 years ago relied on similar strategies to stimulate Chinese demand for Western goods and establish a new code of behavior related to consumption. Through aggressive advertising, Western companies helped cultivate the very notion that the acquisition of material goods is both an essential part of modern life and an affirmation of one’s social standing, a way to gain face.
That is not to say that the West induced a new desire for material things; these impulses have existed in Chinese society since its inception. What they did do, however, was bring these yearnings into the realm of social acceptability. Outward displays of one’s material possessions were no longer frowned upon. On the contrary, they were exceedingly overt so as to attract the attention and respect of wealthy foreigners. Chinese sought to emulate their lifestyles and purchase products that had social or symbolic relevance in Western culture because, in the era of imperialism, the West set the standard of success.
In today’s China, where the type of materialism marketers once encouraged is losing its cache, the affluent elite must establish their own conventions related to luxury consumption. They have fewer and more eclectic role models than their predecessors, allowing for more autonomy and experimentation. They want comprehensive luxury lifestyles instead of simple luxury goods.
A variety of industries have the potential to benefit from such a shift. Consumers are no less concerned with status and face than before. Quite the opposite: They have witnessed the damaging effects of conspicuous consumption on one’s reputation.
In particular, the health and wellness sector should begin to see accelerated growth as Chinese pay greater attention to the condition of their bodies. Research by nutritional industry magazine Nutraceuticals World revealed that over 40% of women in urban China and Hong Kong consider themselves to be overweight.
High-end lines of cosmetic and nutritional products allow consumers to indulge while investing in their physical wellbeing. Health related services like fitness clubs are experiencing double-digit growth while sales of nutraceuticals such as multivitamins, energy products and weight loss aids are advancing profits in consumer goods.
Wellness tourism, which grew by 12% last year in China, has strong appeal for consumers who prefer understated luxuries. A recent study by research house McCann Truth Central found that today’s consumers generally understand wellness as something intangible and holistic, and a particularly high number of Chinese consumers want support in maintaining a healthy lifestyle.
Upscale wellness tours of the like organized recently by the Tourism Authority of Thailand and the Thai Spa Association have done brisk business with wealthy Chinese clients. Usually these tours incorporate forms of physical therapy, non-traditional treatments and simple relaxation in immaculate surroundings. Considering that the number of Chinese travelling abroad hasincreased by nearly 20% since 2008, international wellness and spa destinations are forecast to benefit from a steady influx of Chinese tourists.
The penchant for subtle luxury among China’s wealthiest consumers will trigger a redistribution of spending across a variety of categories in addition to health, beauty and travel.
Still, new luxury consumers will continue to appreciate the big brand names. The long lasting effects of the government’s crackdown on conspicuous luxury are also unclear, and will probably not be reason enough to deter these budding aspirants from their indulgences.
But over time even China’s emerging affluent classes in interior cities will move beyond grand displays of wealth to something more refined. Their habits will become more mature, like those of their peers on the east coast who grew rich first – and who themselves followed the lead of consumers in places like Japan and Korea, where rapid economic growth and higher disposable incomes generated a similar phenomenon.
As this trend progresses, tenured luxury shoppers will be increasingly influential in shaping the values and culture of China’s high society towards more refined habits. For marketers looking to influence the next trend in Chinese high-end consumption, they are a good place to start.