The Outlook for China’s $15 Billion Handbag Market

The Outlook for China’s $15 Billion Handbag Market

For luxury brands that do brisk business in handbags, the health of the China market is top of mind now that slowing economic growth and dampened consumer sentiment have hit the country.

Despite the increasingly challenging environment, China is set to overtake the US as the biggest sales market for designer handbags, according to data from Euromonitor, driving 30 percent of global sales in the category by 2027 — up from 13 percent in 2019.

But this is in large part due to the pandemic, which accelerated growth exponentially in China as a halt to international travel repatriated much of the spend on luxury that used to happen abroad. Domestic sales of luxury handbags more than doubled to hit $15 billion last year, up from $7 billion in 2019, data from Euromonitor shows.

In July, the International Monetary Fund lowered its forecast for China’s GDP growth this year to 3.3 percent — significantly below the government’s 5.5 percent target and the slowest pace in forty years not counting the initial 2020 Covid dip. Since the IMF report was released, President Xi Jinping’s strict ‘zero-Covid’ policies have continued to stifle the Chinese economy, as dozens of cities across the mainland remain in partial or full lockdown including major regional shopping hubs Chengdu, Shenzhen and Guangzhou.

Other factors, including the country’s rising youth unemployment, ongoing supply chain disruptions and a looming property crisis, are only adding to uncertainty in the all-important luxury market.

Yet even amid these numerous and varied challenges, growth of domestic handbag sales in China is set to continue: Euromonitor forecasts the market will reach $30 billion by 2027, doubling over 2021 figures. This spells good news for luxury brands, which often rely on the category to drive sales and improve margins.

“Handbags tend to be the most expensive item that consumers buy for their daily outfits — this is true even for the more mature and experienced consumers,” Regina Szeto, founder of Shanghai-based branding and marketing consulting firm Regina Szeto & Co, told BoF Insights.

According to the BoF Insights report, “The New Era in Designer Bags,” there are several findings that brands need to consider as they refine their China strategies amid an increasingly uncertain outlook for the luxury industry both globally and in the mainland.

How to Make a Bag ‘Baokuan’

When deciding what brands to purchase, Chinese consumers prioritise the brand’s style and values above other factors, such as securing limited edition styles, celebrity associations, experimenting with something new or the likelihood it will retain its resale value, a BoF Insights survey found.

Brand style and brand values were particularly important for a panel of high-net-worth individuals with between $1.5 million to $2 million in investable assets, where more than two-thirds of respondents selected these two attributes as the key reasons why they would buy one designer bag over another.

BoF Insights found that consumers in the US most frequently mentioned accessible luxury players like Coach and Michael Kors as the brand from which they would consider purchasing their next designer bag. In comparison, the absolute luxury brands prevail in popularity in China, with Chanel, Louis Vuitton, Gucci and Dior ranking as the top brands that consumers consider when shopping for a new designer bag.

Increasingly, young affluent shoppers will purchase bags as part of a head-to-toe look in the same brand, said blogger and influencer Tao Liang, better known by his online name Mr Bags.

“When they wear the whole outfit, it not only shows their wealth, but also their taste and style,” he said.

However, it’s important for brands to note that innovation and newness are crucial in China, as a lot of luxury consumers will already have the best sellers, Szeto said.

This has helped create a dynamic environment for smaller players and up-and-coming names like Jacquemus, Yuzefi and By Far in the China market. Meimei Ding, CEO of Shanghai-based showroom and consultancy DFO International, said that about seven or eight years ago, it was far harder for brands on that scale to compete with the biggest players. However, the growing popularity of emerging brands — both international and domestic — has started to lessen the gap.

Established brands also have to compete with the rise of handbag collaborations from homegrown luxury ready-to-wear labels like ShuShu/Tong and Angel Chen and dedicated Chinese accessories brands.

More affordable prices can make emerging brands attractive, especially among younger shoppers. But Chinese consumers also increasingly opt for emerging brands because they want to showcase “a personal style and attitude as a trendsetter rather than a follower of big brand names,” said Ding.

“Brands that strike the right formula… will stand above [their] competitors. The market is very big in China, which allows brands with different offerings to each find its market space,” she said.

Working with celebrities and influencers to promote new styles is crucial to breaking through in the crowded and complex market, arguably more so than in other international markets, especially when determining the potential for a bag to become “baokuan” — an extremely popular style — according to Tao.

“The key is how to work with them in the right way to maximise the influence,” he said. This means working with a local Chinese name, and ensuring the bag can’t be too easy to find in stores, he said, as scarcity helps drive desirability. However, the growing number of controversies and scandals in China in recent years shows this strategy is also increasingly risky.

Tao pointed to the success of Chanel’s launch of the Gabrielle bag, first introduced for the Spring/Summer 2017 season. When the style launched in China, many Chinese influencers and celebrities posted on social media about the bag at the same time. By the time most ordinary consumers went into stores, it was already sold out, he said.

“[Shoppers] had to keep chatting with their Chanel sales [associate] via Wechat to wait and finally get one,” he said, also noting Dior’s saddle bag relaunch as a similar example of this strategy working.

Tapping Into Local Trends and Behaviour

Among female high-net-worth individuals, mini bags and top handle bag styles were more popular than tote bags in China, BoF Insights found. By contrast, tote bags were most popular among the same demographic in the US, followed by shoulder bags.

Avid luxury shoppers tend to already have the larger iconic silhouettes and totes from top brands, said Szeto, so now they’re turning to mini styles instead. Smaller bags tend to come at a lower price point, so it’s easier to buy a new style every couple of months, she noted, adding that mini bags require less room for storage, a point worth considering for some wealthier consumers in China’s densely populated megacities where even upmarket apartments can often be relatively small.

Cynthia Houlton, global head of fashion and accessories at Sotheby’s, sees this trend playing out at auction too. Sotheby’s regularly hosts auctions in Hong Kong, selling bags from Hermès, Chanel and Louis Vuitton for significant sums. Hermès bags are particularly popular at auction, given how difficult it is to secure new styles within the primary market. Currently, miniature versions of the French brand’s classic Kelly bag are “having a huge moment,” she said. “In Asia, we’re often selling smaller… bags,” she added.

Sustainability isn’t yet a key purchasing driver just yet in China, according to Szeto. In particular, the demand for innovative sustainability-focused materials isn’t widespread in the mainstream, she said. “Consumers don’t make a purchase decision based on that,” she said.

However, attitudes toward broader sustainability issues are another matter. A survey by BoF Insights of HNWIs in China found that nearly 90 percent of respondents said that use of supply chain transparency and a brand’s ESG programmes were important considerations when purchasing a handbag. Just three percent of respondents regarded sustainability credentials as unimportant.

“Now we’re at an [inflection point] because, there’s demand [for more sustainable solutions] from Chinese consumers [and most importantly] from the Chinese government,” said Shaway Yeh, founder of Shanghai-based sustainable fashion consultancy Yehyehyeh. “In China, it’s very top-down,” she added, referring to the influence of public policy and regulation on private-sector agendas.

Indeed, experts are seeing attitudes towards sustainability shift significantly among certain consumer groups in the country. Ding gave the example of how some brands her showroom represented began selling upcycled designs four or five years ago. At the time, buyers were upset that the merchandise they received wasn’t identical to the samples in the showroom. Today, however, that attitude has shifted, with a greater flexibility for the inevitability of each item being unique because of the sustainable ideology behind the creative process, she said.

“Sustainability [considerations] have a lot of room to grow, but I do see purchasing habits becoming more conscious with our consumers, and the level of respect and awareness for sustainable designs rising,” Ding added.

The New Era of Designer Handbags

THE LATEST NEWS FROM CHINA

by Annachiara Biondi

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Michael Schriver, LVMH's group president for North Asia.

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