Luxury brands are concerned about China. While luxury-hungry consumers in the east Asian nation have significantly boosted demand for this segment over the past several years, a handful of factors – ranging from the uncertainly surrounding U.S./China trade talks to the government’s continued attempts to stomp out the Daigou system, which sees consumers on the mainland utilizing non-native surrogate shoppers as a way to beat Chinese sky-high tariffs – are dimming the prospects for future growth.
Despite these global concerns, one group is not worried: China’s Gen-Z consumers. Chinese natives born in 1998 and after are demonstrating remarkable spending power, in some cases, shelling out more than $7,000 per year for luxury goods even before they reach age 21.
“They are pumped up about the future and not worried about their career prospects or international politics, notwithstanding a trade war at their doorsteps,” per Bloomberg. “This is a generation that has never known worry, so they spend more and save less,” Adam Xu, a partner at OC&C Strategy Consultants, told the publication.
According to a recently-released report from OC&C, a global business consultancy, which summarizes findings from a survey of 15,500 Gen-Zers from nine countries, including China, the U.S., and an array of European nations, Chinese teens are demonstrating a marked willingness to spend on luxury goods compared to many of their Western peers. They account for 15 percent of their household’s spending, compared to U.S. and U.K. peers who account for just 4 percent.
As for young Chinese consumers, specifically, by 2025, Gen-Z consumers and their older Millennial counterparts will account for 46 percent of luxury purchases in the market, according to a November 2018 report from Bain & Co. This is due, in part, per OC&C to “the launch of the one-child policy in 1980,” which means that many Gen-Zers in China were born as the only child in their family. “Being only children, Gen-Zers are more likely to receive generous financial support from their parents than older generations.”
Moreover, the discretionary income of Chinese Gen-Zers and millennials is boosted by the fact that they are more likely than many of their Western equivalents to live with their parents. A 2016 survey from global real estate and investment form, CBRE, revealed that 63 percent of Asia-Pacific millennials, those between the ages of 22 and 29, are still living with their parents. (According to an April 2018 study by the Pew Research Center, 33 percent of 25-29 year olds were living with their parents or grandparents).
This financial support and excess in spending money, paired with a relatively care-free attitude towards luxury spending that emanates from young Chinese consumers, comes in contrast with more cautious young consumers in the U.S., for instance, who “grew up, or were born into, an era defined by political and economic turmoil,” according to OC&C. “The financial crisis of 2007, and the 9/11 attacks that took place six years earlier, meant childhood was a time of relative hardship set against a backdrop of increasing anxiety for many Western Gen-Zers, as both the ‘war on terror’ and Great Recession took hold.”
The spending patterns of this particularly nuanced and diverse group of young consumers is of particular interest for brands, as in little over a decade, they will account for one third of all consumers worldwide, but even before that, they are track to become the largest generation of consumers, outshining the pesky millennials by 2020.