What is the Market Size of China's Luxury Market?

By Kristin Graham While a bit of an overstatement, the idea, presented by a panel of retail experts at a recent American Chamber of Commerce event here in Shanghai, has significant merit. A recent survey by TNS Research supports this notion, considering luxury consumers to be individuals earning over RMB 6,500 per month (or roughly $975) in tier one cities and RMB 4,500 ($675) in tier two cities. Clocking in just over the poverty line of the U.S. (for tier one cities), it's difficult to understand how this is possible. Even more baffling is to consider that Western brands are dramatically marked up here.

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The amount of renmimbi I see flowing out of the hands of Chinese each weekend at high-end malls versus statistical wage earnings puzzled me for a long time. But a statement made at the AmCham event cleared up the picture: for every individual on China's rich list (worth US$150 million) with known wealth, there are an estimated two more with equivalent hidden wealth. While this refers to the super rich, it presents the idea that there is significant hidden wealth among the Chinese. Where this wealth comes from is largely unknown. What is known is that Chinese people have money. And unlike the older generation's conservative nature to save, the younger generation is spending this wealth at a rapid rate on Western luxury brands.

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Despite its behemoth size and swift growth, the Chinese consumer market isn't an easy target for Western brands. Chinese consumer behavior is foreign to Westerners and the mentality behind their purchases is far different than that of their American counterparts. Take for example the upcoming Black Friday. US shoppers, who earn far more (in US dollar terms) than the average Chinese, will rush out to uncover bargains that would cause most Chinese to turn their nose up. Americans looks for the biggest bang for the buck, finding no shame in snagging a 40% off deal at Saks (SKS). The Chinese are concerned with the biggest buck, and wouldn't be caught dead pursuing the likes of a TJ Maxx (TJX) store for a luxury branded item.

(To view Business Pundit's article on the ten best websites for Black Friday deals, click here.)

Because many Western brands not yet available in China are unknown to Chinese consumers, many companies have the potential to break into the market if they can position themselves correctly; as a luxury brand at a premium price. Yes, quality matters. But from my observation and interaction with young Chinese consumers, a high quality product at a lower price point won't sell. A good Chinese friend of mine purchased US$500 boots for his girlfriend the other day in Shanghai. Given the price point, I was expecting to hear a brand along the lines of Cole Haan. They were Guess (GES). On the US Guess website, I couldn't find a boot over US$200. A few days later, my friends and I uncovered a Coach (COH) bag also retailing for more than twice the USD equivalent on the US website. Even basic Nine West shoes that would retail for US$70 are upwards of equivalent US$200 to US$250 at Shanghai malls.

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