The last year has been catastrophic for retail and luxury. However, one of the most surprising effects of the pandemic has been the rise of new luxury sub-segments exceeding our expectations.
Even though China has gone back to work, reverberations from the stay-at-home economy still linger. Consumer spending and behavior have been altered (at least for the medium-term), and most shoppers have learned to prioritize wellbeing, comfort, and non-discretionary expenses.
The rise of a post-aspirational mindset and the adoption of healthier, minimalist lifestyles also pushed consumers to embrace the Dieter Rams mantra: “Less, but better.” Instead of pursuing trends or the latest fashions, Chinese luxury shoppers are chasing investment pieces. Meanwhile, the second Wave Of The Trend Lens consumer study conducted by Agility Research & Strategy shows that 54 percent of the Chinese HNWIs interviewed plan to buy more expensive luxury items.
Hermès Birkin leather handbags and fine jewelry are stable investments; hence, they had a swift recovery. Interestingly, this unique consumer buying behavior is similar to what we had seen in more mature markets like the US.
Edahn Golan, the founder of Edahn Golan Diamond Research & Data, explained that fine jewelry sales in the US have picked up again from the early months of the pandemic, gaining strength heading into the summer. Fine jewelry sales went up by almost 10 percent to $5.25 billion during August, year-on-year, according to CNN Business.
Among other things, the world’s largest diamond jewelry retailer, Signet Jewelers Limited, announced that the company’s preliminary August sales for all jewelry are up 10.9 percent compared to 2019, CNN Business reports.
Now, let’s take a look at the segments that are over-performing in China:
1. Workout gear
According to the South China Morning Post, China’s health & wellness industry is estimated to grow by 19.2 percent to$145.1 billion by 2025. The pandemic has undeniably triggered a global health & wellness boom, and Lululemon Athletica — a company that believes “in a holistic approach to wellbeing” — has benefited immensely from this trend.
“We saw a 45 percent revenue increase in international markets, and despite all that happened in the world, China delivered a really strong performance with total revenue increasing by more than 100 percent in the third quarter,” said Calvin McDonald, Lululemon’s chief executive, in the South China Morning Post.
McDonald believes that the company can maintain dynamic sales even after the arrival of Covid-19 vaccines. “We don’t see any dramatic impact in the reduction of the momentum in the business… there are a lot of drivers of growth within the marketplace,” he said in an interview on “Mad Money.” “I think there are some lasting [pandemic] inflection points across the guests.”
McDonald correctly states that consumers have learned to prioritize health and wellbeing. As such, activewear and workout gear are here to stay.
Overall, the global health & wellness industry increased by about 6 percent to $775.5 billion in 2020, while China’s industry grew by 3.3 percent to $121.7 billion, according to Euromonitor. And by 2021, China is estimated to hit $145.1 billion.
2. Athletic footwear
Considering China’s rekindled passion for sports and wellbeing, it’s hardly surprising that athletic footwear is also growing in momentum. Take, for example, Nike’s strong sales during Singles’ Day, helping the brand raise its financial outlook for 2021.
“With sales somewhat stagnant on its home turf, Nike has been doubling down on the China market, seeing the region as a key growth opportunity for the brand,” says Lauren Thomas, CNBC’s retail and real estate reporter. “Over the summer, it opened a new kind of store called Nike Rise at a mall in Guangzhou, which holds local meetups for its mobile-app users.”
The Nike Rise store in Guangzhou offers members access to in-store workshops and events as well as a personalization bar, with design elements inspired by the city’s sport culture. Photo: Courtesy of Nike
CNBC reports that Nike’s revenue grew 24 percent in the Greater China region year-on-year, compared to just one-percent growth in North America.
Digital-first intimates and lingerie brands Neiwai and Ubras have won in the China market with their comfy designs and empowering messages.
According to iiMedia Research Group, the Chinese underwear market was valued at $61 billion in 2020. This scale presents a unique opportunity for global brands. But so far, domestic players seem more resilient and better equipped to weather market changes.
The Western lingerie veteran Victoria’s Secret crashed and burned in China. But local lingerie brand Ubras surpassed Uniqlo to become Tmall’s best-selling underwear brand during the Singles’ Day 2020 shopping extravaganza.
“On the first round of the shopping festival, which started from October 24 to November 3, Ubras used 33 minutes to surpass its sales volume on last year’s Double 11,” says China Marketing Insights. “It broke 100 million RMB in sales in 1 hour and 45 minutes.”
Technavio predicts the sleepwear and loungewear market will grow by $19.5 billion between 2020 and 2024, progressing at a CAGR of almost 9 percent during this period.
In China, the loungewear trend is gaining momentum because of digital interactions and smart digital marketing strategies. Hashtags like #StayInFashionGuide and #StayInPajamaContest amassed high participation rates. And KOLs even joined the hype by recommending loungewear brands.
KOLs that hopped on the loungewear trend include Chinese artist Wu Zhehan (left) and food blogger Shuibingsha 水冰沙 (right). Photo: Weibo
According to The Moodie Davitt Report, L’Oréal generated massive sales in China, outperforming predictions. The French Group highlighted the “spectacular” performance in China, where e-sales growth beat estimations. L’Oréal was again a leader in category sales during the 2020 Single’s Day event.
But domestic players also had a good year. Chinese makeup brand Yuetong, for example, secured tens of millions of yuan in its pre-Series-A funding round, and Hangzhou-based Proya Cosmetics Co gained by over 88 percent in 2020, according to The Business Times.
6. Leather goods
Even before the pandemic, clothing was an underperforming segment, and brands had to rely on leather goods to maintain momentum.
“Most runway pieces never get produced,” said Cameron Silver, the founder of Decades, to the Daily Beast. “They’re marketing exercises. The legacy brands aren’t in the fashion business anymore. They’re selling handbags and lipsticks.”
The Altagamma Consensus study estimates that, in 2021, the leather goods segment will dominate and register the most growth (+16%).
In China, various luxury brands have already announced new price hikes for bags, small leather goods, and entry-level items. We foresee that this price strategy could drive up in-store traffic and bring additional sales opportunities.
In China, the jewelry segment is fueled by consumption trends in lower-tier cities. According to Daxue Consulting, “the geographic center of jewelry consumption is shifting downward,” as larger first-tier and second-tier cities are reaching full maturity.
Daxue Consulting highlights how, in recent years, Lukfook and Chow Tai Fook Group have expanded into lower-tier cities. As such, domestic brands now understand that they need to take advantage of the new politics and trends of consumption.