Why China Is The Only Luxury Superpower
Just 20 years ago, the luxury world looked completely different. Japanese customers were the most sophisticated globally and were dominating luxury purchases outside of their home countries. For some of the top luxury brands in the world, their stores in Hawaii were top revenue drivers after their flagships in Paris, Milan, or Rome. No, there is not a mistake — Hawaii was a top revenue driver because of its popularity with Japanese tourists.
And when Japan was the driver of growth in the luxury world, life for luxury brands seemed predictable. Japanese customers loved Western heritage brands and did not expect much localization. Retail and marketing approaches within Western and Japanese markets were pretty similar, sales were easily generated in flagship stores, and advertising followed the same principles in both markets (mainly print and outdoor). The service expectations of Japanese customers were significantly higher than Western buyers, but that was easy to manage.
Fast-forward to our current reality, and things could not have changed more drastically. While Japan is still an extremely important market for many luxury brands — one with solid demands and an ongoing desire for craftsmanship and quality — luxury’s center has shifted to China. Over the last five years, most of the world’s luxury consumption growth was either directly generated by Mainland China or driven by Chinese tourists purchasing luxury goods outside China.
These cross-border luxury purchases swelled to epic proportions: Within a few years, Korea became the world’s number one duty-free shopping destination, fueled by Chinese travelers who would conveniently hop over on a short 2-3 hour flight to purchase luxury. Recently, the largest island in Mainland China, Hainan, bloomed into an entertainment/travel/shopping destination that could, in a few years, rival Dubai, now that its generous duty-free allowances are redirecting customers from other destinations to stores inside China.
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