China set to become the world’s largest market for luxury goods

By Katie Bird

- Last updated on GMT

Related tags Luxury goods market Luxury good

China has recently overtaken the US as the second largest market for luxury goods and growth is not expected to slow, making it a crucial target for high-end cosmetic players.

According to the Chinese Academy of Social Sciences, at the end of 2009 the luxury market of the country was valued at $9.4bn, accounting for 27.5 percent of the world’s luxury goods market.

Cosmetics are a good introductory purchase

This is predicted to grow to $14.6bn by 2015, and according to Datamonitor analyst Priscilla Siew, luxury cosmetics, and to a lesser extent fragrances, are perfect purchases for the Chinese consumer wishing to enter into the luxury space.

According to the analyst, Chinese consumers often use luxury as a mark of status and a way to differentiate their personal wealth from the rest of society – difficult under a restrictive socialist regime.

“What’s interesting about the growth of the luxury market in China is that it’s driven by the collective aspirations of an entire society of people that, after years of enforced financial homogeneity across households, now has an opportunity to improve their material well-being and to differentiate themselves with new-found wealth,”​ she told USA.

Although this aspiration for luxury is high, Siew pointed out that the purchasing power by international standards is still low.

“For the average white-collar worker in the urban parts of China, personal care and cosmetics represent a “low hanging fruit” of sorts, more attainable at this stage of their lives than, say, a BMW or a Patek Philippe.”

Due to this mindset and the more affordable nature of cosmetics in comparison to other luxury items, the market for luxury cosmetics is expected to continue to grow in the country.

A recent report from Bernstein Research claimed that over the next few years prestige brands such as Estee Lauder as well as high-end mass brands such as P&G will be more successful than the lower-end brands of a company like Avon.

Currently, prestige beauty products represent approximately 24 per cent of the total beauty market in China, up from 10 per cent in the mid 90’s, and Bernstein Research predicts that such products will represent over 27 percent of the market by 2014.

Global brands should not rest on their laurels

However, in order to succeed in this market global brands should not rely completely on their international status for success.

Often the international brands are more respected in the luxury sector than their domestic counterparts, but Siew warned as the market develops consumers are becoming more discerning.

“…it’s no longer enough to be a foreign brand, they require the foreign brand to demonstrate that it understands them and that it serves their unique needs and tastes,”​ she said.

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