The investment is all set to reestablish the brands in the country after a crackdown on conspicuous spending five years ago. It is focused on smaller, lesser developed cities. This is despite Chinese economy’s recent slowdown.
Increasing spend by cash-rich Chinese millennials, who are largely unhindered by the crackdown on corruption and extravagant spending—has prompted the brands to revamp some stores and open newer ones in second and third-tier cities, where luxury spending is increasing at a fast rate.
The youngsters, who account for around 30% of the sector’s China sales, are a demographic less sensitive to wider economic factors, according to executives.
“There is the emergence in China of a very strong upper class or upper middle class,” Jean-Paul Agon, Chairman and CEO of cosmetics group L’Oreal said on a call with analysts.
“And the difference is that now millennials from this middle and middle upper class are absolutely not hesitant to buy luxury brands.”
Often single children armed with family money, the 20-34 year-old demographic started buying luxury brands at a young age and purchases more frequently, splurging on everything from jewelry and fashion, to cosmetics and handbags, according to industry experts.
Many millennials are also choosing to remain in the country’s outlying provinces, shunning more expensive, larger cities such as Beijing and Shanghai, thanks to rapid industrialization and urbanization.
“Where the spend is? It is the post-90s, the young generation – definitely a young generation that spends money on luxury,” said Shanghai-based Daniel Zipser, senior partner at McKinsey & Co.
Zipser also added that revenue growth in China’s luxury segment was around 15-20% for the first half of the year.