The global luxury market will be massively impacted by a new generation of Chinese consumers in the coming years. According to McKinsey's “China Luxury Report 2019,” based on UnionPay transaction data, the Asian country will have generated 65 percent of the world market's growth from 2018 to 2025, and will represent 40 percent of the global expenditure on personal luxury goods by 2025. China already delivered more than half of the global growth in luxury spending between 2012 and 2018.
Growth will be primarily driven by a major increase in the number of upper-middle-class households, whose population will rise at a compound annual growth rate (CAGR) of 28 percent from 2018 to 2025. The total number of people in China earning between $2,600 and $3,900 per month per household will reach 350 million. During the same period, the number of households earning above $3,900 per month, i.e. China's affluent class, will almost triple to 65 million people.
The generation of post-'80s consumers is still the largest luxury spending group, in terms of both consumer numbers (43 percent) and total spending. The generation born in the 1990s, which accounted for 28 percent of consumers in 2018, is that of the “single-child” period and the recipient of an outsize level of familial support. This financial cushion has a major impact on these consumers' willingness to spend big, and to spend on luxury, explains the report. At the same time, young Chinese consumers are new to luxury. Only 13 percent of post-'80s and post-'90s luxury spenders said they grew up in a household familiar with luxury products. Half of post-'90s, and 31 percent of post-'80s consumers, only made their first luxury purchase in the last year.
Generation is also a key factor when it comes to the top reason for luxury purchases. Brand is still the leading factor among all generations, but is comparatively much more important to the older generations. Brand was chosen, for the purposes of McKinsey's survey, as the no. 1 contributing factor for their last luxury purchases by 94 percent of the generation of post-'65s/'70s. The percentage goes down to 72 percent among the post-'80s, and to 68 percent for the post-'90s. Social influence is accelerating sophistication, and consumers show to increasingly appreciate elements such as design, fabric, and manufacturing process, says the report.