Mainland Chinese shoppers increased their spending on luxury goods overseas by 10 per cent last year according to new research from Bain & Company.

The increase comes as a surprise given the significant slowdown in China’s economic growth, the much-publicised clampdown on gift-giving and the struggle of Hong Kong watch and jewellery retailers over the past 12 months.

Bain & Company’s report, the 2015 China Luxury Market Study says mainlanders are shopping more on cross-border eCommerce and travelling to new destinations to indulge.

In 2015, they shunned Hong Kong and Macau in favour of places like Japan, where spending soared 200 per cent.

Bain’s research, which included a survey of nearly 1500 Chinese consumers, found a sizable shift in shoppers’ geographic preferences for luxury shopping in 2015. Japan, South Korea, Europe and Australia were all popular shopping destinations, due to favourable exchange rates and competitive pricing on luxury goods in these markets.

As overseas travel among Chinese shoppers increased – up an estimated 32 per cent from 2014 – consumer reliance on Daigou, or overseas personal shoppers who buy and send luxury goods to customers in China – contracted. The growing channel choice in 2014, Daigou decreased to an approximately 43 billion RMB market last year.

Bain attributes the drop to several factors including price adjustments by key brands that reduced Daigou margins, government efforts to tighten control over imports, including Daigou, a weakened RMB, and an increased reliance on other purchase channels – notably cross-border and overseas websites, which accounted for 48 billion RMB of the 293 billion RMB luxury spend overseas.

The report highlights the increasing popularity of cross-border and overseas websites as luxury shopping channels: nearly half of those surveyed said they purchased luxury goods via these sites last year.

According to Bain, increased international tourism, and growing comfort and trust in some business-to-consumer (B2C) overseas websites among China’s shoppers helped stimulate overseas purchases. This resulted in a slowdown in China’s overall luxury market, which dipped 2 per cent to 113 billion RMB last year, driven by a decline in watches, men’s wear and leather goods.

Luxury brands seeking to overcome the economic slump and reinvigorate consumer spending domestically must employ a more tailored, localised marketing strategy, with high fashion content and adjust their pricing to reduce disparities across geographies.

“We saw notable changes in where and how Chinese consumers acquired luxury goods last year,” said Bruno Lannes, a Bain partner based in Shanghai and author of the report.

“Buying overseas has been a trend for years, but destinations have changed, and Daigou is declining because of multiple and converging drivers from major industry players, including the government,” he said.

“Our research found that the industry is quickly adapting to these challenges in an effort to drive more luxury consumption at home through strategies such as global pricing and a greater focus on fashion.”

A corollary to the drop in domestic sales is a reduction of the store footprint by most brands, with a greater focus on fewer, larger and better located stores. Many brands realise they need to regain their exclusive image, which has been somewhat blurred by over extension.

As in 2014, the research shows the greater importance of fashion and exclusive designs to win domestically. Brands with a strong fashion heritage and stronger emphasis on original design did well in 2015.

The survey reveals that nearly 80 per cent of respondents said they normally get information on luxury brands from the internet or apps, and a full 60 per cent identified social media channels Weibo and WeChat as their online source for information on luxury goods. As a result, brands spend, on average, 35 per cent of their marketing budget on digital, and it is growing.

Looking ahead, Bain expects these and other 2015 trends to continue this year, prompting further challenges, opportunities and requirements for brands:

• Macro environment expected to remain similar while the rising middle class becomes more sophisticated and knowledgeable about luxury.
• Overseas channels will stabilise (daigou will decline). Global pricing by leading brands and government efforts to localize consumption will spur domestic growth. Global pricing, will likely spread further to other brands.
• Luxury brands should strengthen both digital platform building (e.g., Weibo WeChat, apps) and digital content creation, with an emphasis on localisation to reflect local market preferences.
• Luxury brands must place greater emphasis on making their brand “younger” and more fashionable to capture the next generation of trendy customers. There will also be an increased focus on “exclusivity,” both in product design and store footprint.

“Despite persistent macro, economic and industry challenges in China, all hope is not lost for luxury brands,” said Lannes.

“There are plenty of growth opportunities for those with more exclusive and fashion collections, digital platform engagement and digital content creation, as well as with pricing that encourages Chinese consumers to spend locally.”