Why China’s Luxury Department Stores Will Be a Booming Business by 2022

Luxury department stores will thrive in Asia and the Middle East over the next five years, found GlobalData in a study commissioned by department store architect and designer Sybarite. The report, titled “The Future of the Luxury Department Store,” said that that sector in China, in particular, will grow 97.3 percent by 2022.

Asia, as a whole, could see a 58.4 percent increase in annual department store spending, reaching $342.9 billion by 2022, according to the study. China is expected to make up 53.7 percent of that total market, driven by middle-class spending on beauty, leather goods and luxury fashion.

“The story of shops closing and the decline of retail has become a familiar one across the Western world,” said Chris Sanderson, co-founder of The Future Laboratory. “There’s no such quandary 8,000 miles away in China, where the ‘either-or’ retail equation is being pushed aside in favor of a holistic model that melds the best of both the in-shop and online experience.”

In China, many tech companies have started to push for a greater connection between retail and online sales, and many of those same companies have looked to luxury to accomplish this. Researchers point to examples like Alibaba’s new Luxury Pavilion, which looks to digitize the luxury space with an invitation-only online marketplace, as proof-positive that luxury can be successfully molded for online experiences — despite the high expectations of its customer base.

This online luxury revolution is made possible in China, thanks to the “markedly different” tastes of the upcoming generation, according to the report. The youth of China, sometimes referred to as the “Moonlight Clan,” are described as “existential consumers” in the study, signaling their willingness to part with the traditions of the past — think heritage luxury brands — for new experiences and products that might help define them. And, as it turns out, there are stark differences between Chinese millennials and Generation Z when it comes to luxury brands.

For one, both groups find their cultural heritage important, as they have only ever experienced a global China. As the world has opened up, the value of a brand helping to create a more localized identity has increased. Millennials increasingly prefer to purchase domestic luxury brands, and a majority (61.5 percent) said financial accomplishment is no longer the main signifier of success. When they do purchase luxury brands internationally, these shoppers prefer to buy from enduring brands like Louis Vuitton and Gucci.

On the other hand, Gen Z shoppers are more likely to purchase collaborations and try out new brands as they come up. Even less emphasis is placed on international heritage, but they are willing to support legacy collaborations like those seen recently by Off-White and Supreme x Louis Vuitton. For both generations of shoppers, “mall culture” still remains an important factor and is something that department stores can capitalize on.

“While nearly all Chinese youngsters shop online to some extent, mall culture is still an important, and much used, means of socializing,” researchers noted.

Department stores in China have noticed the demographic shifts, increasing their efforts to attract millennial and Gen Z shoppers, and GlobalData and Sybarite predict they could be the driving force behind China’s department store dominance. Over the past two years, digital marketing aimed at millennials has become a larger focus for advertisers. As much as 50 percent of the total marketing budget in China, industrywide, went to millennial-centric marketing in 2017, compared with 35 percent in 2015.

These same stores have begun to use virtual and augmented reality and artificial intelligence to create the “holistic models” of retail that Sanderson mentioned and create a truly integrated digital-to-physical experience, which consumers have been shown to prefer to digital-only. Data shows this retail model could become even more valuable in China than it is in the West. Fifty-three percent of Chinese consumers spent more on experiences than the year before, compared with 26 percent of Americans.

Luxury department stores outside of China might also be able to capitalize on the influx of Chinese international travelers, which have tripled in number over the past decade, with 130 million trips in 2017. These travelers are typically affluent and accounted for 32 percent of global sales for personal luxury goods in 2017. Luring in this “moving target” will become a prime directive for luxury department stores in the future, no matter where they are.

Editor’s Note: This story was reported by FN’s sister magazine Sourcing Journal. For more, visit Sourcingjournal.com.

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