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The Outlook for China’s $15 Billion Handbag Market

Despite economic headwinds, China is set to overtake the US as the world’s largest market for luxury handbags with domestic sales doubling in just six years. But to capture that growth potential, brands must refine their approach.
An influencer wears a pink Chanel handbag.
An influencer wears a pink Chanel handbag. (Shutterstock)

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.

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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.

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“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.

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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.

Additional reporting by the BoF Insights team.

The New Era of Designer HandbagsOpens in new window

THE LATEST NEWS FROM CHINA

by Annachiara Biondi

时尚与美容

FASHION & BEAUTY

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

LVMH Taps Michael Schriver to Oversee Greater China, Korea

Luxury conglomerate LVMH has chosen industry veteran Michael Schriver to lead its China and South Korea operations as group president for North Asia. Schriver, who has been with LVMH since 1998, previously served as president of North Asia of Louis Vuitton and as chief operating officer of the conglomerate’s travel retailer DFS. Andrew Wu, LVMH’s current president for Greater China, will remain in place, reporting to Schriver. Earlier this year other luxury companies, including Kering, reshuffled their management positions in Greater China, as the market faces uneven recovery and slowing economic growth. In April, Kering-owned Gucci appointed Laurent Cathala as president of Greater China, Fashion Business, while Valentino tapped Janice Lam as CEO of Greater China. (BoF)

Chinese Firms Youngor Group and Challenjers Capital Invest in Alexander Wang

Alexander Wang has received its first outside investment from fashion conglomerate Youngor Group and venture capital firm Challenjers Capital, two Chinese companies with experience in the apparel, textile and consumer industries. The undisclosed minority investment, which has been in the works since before the Covid-19 pandemic, will be used to expand the American brand’s global presence. In 2020 and 2021, Wang was accused of sexual assault and misconduct, allegations which he has denied multiple times. After a two-year hiatus, the designer hosted a runway show in Los Angeles’ Chinatown in April. (Fashion Network)

Louis Vuitton, Valentino Take on Seaside Resort Aranya

Louis Vuitton plans to show its Spring/Summer 2023 menswear show in Aranya, a popular resort destination in Qinhuangdao, two hours by train from Beijing, on Sept. 16. The show, which originally debuted in June in Paris, will be accompanied by events, including contemporary dance performances, film screenings and a party. Aranya will also see installations by Italian luxury brand Valentino, followed by a pop-up store open from Sept. 21 to Oct 31., to celebrate the brand’s Autumn/Winter 2023 “Pink PP” collection. A coastal community favoured by creative industry leaders, Aranya’s lively cultural scene has already attracted multi-brand boutiques such as Cave by Dongliang, Hug, SND and OK Centre, as well as activations by foreign companies, such as Pierre Cardin, Apple and BMW. (Retail In Asia)

科技与供应链

TECH & SUPPLY CHAIN

Tencent Holdings Ltd has raised $3 billion by selling 14.5 million shares at $208 each in Sea.
Tencent Holdings Ltd to divest 100 billion yuan. (Shutterstock)

Tencent to Divest 100 Billion Yuan

After years of aggressive national and international investments, tech giant Tencent plans to divest 100 billion yuan ($14.5 billion) from its listed portfolio of $88 billion this year, according to people familiar with the matter. The Shenzhen-based firm own super-app WeChat, a critical marketing and sales channel for many fashion and beauty brands, and has a stake in several companies across the gaming, e-commerce and retail sectors including interests in the fashion category. The company has been pressured by antitrust scrutiny regulators and investors, worried by its underperforming assets in a slowing economy. In August, Tencent reported its first decline in quarterly revenues, posting a 3 per cent drop to 134 billion yuan ($19.7 billion) and missing analysts’ expectations. The company was also affected by the regulatory clampdown on gaming launched by the government last year. (The Financial Times)

Beijing Publishes Plan to Regulate “Digital Humans”

The Beijing municipal government has published a four-year plan that sets standards and regulates everything performing a human-like function online and in the metaverse. The Beijing Action Plan for Promoting the Innovation and Development of the Digital Human Industry wants to boost investment in digital humans such as digital assistants, virtual influencers and gaming avatars, but also focuses on the handling of personal data, as well as promoting the “healthy and orderly development of society.” According to the plan, revenue from the so-called digital human industry in Beijing alone will hit $7.3 billion by 2025. (Rest of The World)

China Cotton Prices Crash After US Ban Takes Effect

Prices for Chinese cotton declined 24.1 percent in July after the US ban came into force in June on cotton imports from Xinjiang amid reports of forced Uighur labour and other abuses in the Chinese province. Overall, prices of Chinese cotton have dropped 31.1 per cent this year, with the China Cotton Index (CCI) declining to 14,503.41 yuan per ton in August from a peak of 21,051.56 per ton in February. Chinese cotton, as well as shoes and apparel, could soon be affected by a European Commission plan, expected later this week, which is set to ban products made using forced labour in relevant European markets. (Fibre2Fashion)

消费与零售

CONSUMER & RETAIL

Pinduoduo misses quarterly revenue estimates.
Pinduoduo enters the US market. (Shutterstock)

Pinduoduo Enters US Market, Alibaba’s Lazada Eyes Europe

Chinese e-commerce giant Pinduoduo is making its first push overseas with the launch of Temu, a cross-border platform targeting the US market. Offering categories such as clothing, jewellery, electronics and home & garden, Temu is seen as a competitor of both Amazon and China’s ultra-fast fashion brand Shein. Amazon could also face heightened competition from Alibaba’s international e-commerce company Lazada Group, which is preparing to enter the European market according to recently appointed group CEO James Dong. Chinese e-commerce companies are facing challenging economic conditions at home, but Pinduoduo, which is known for offering heavily discounted products and group-buying options, is seen by some investors as more resilient than e-commerce rivals Alibaba and JD.com as Chinese shoppers become increasingly price sensitive. Shares in the company have grown by 43 percent in the past month. (CNBC, Bloomberg)

Hong Kong Retail Sees Modest Rebound

Retail sales in Hong Kong surpassed expectations in July after two months of decline, growing 4.1 per cent to HK$28.3 billion year on year. Consumer spending was supported by improving labour market conditions, but the increase also benefited from a lower base of comparison from the same month in 2021. Despite the encouraging results, department store sales still decreased by 9.7 per cent over a year earlier as the city’s social distancing measures and quarantine requirements continue to dampen recovery in both spending and tourism flows. A government spokesperson indicated that consumption vouchers issued in August should further improve recovery in the coming months, but also warned of tighter financial conditions and the ongoing development of the local epidemic. (Inside Retail Asia)

政治,经济与社会

POLITICS, ECONOMY, SOCIETY

A women at a sewing machine in a factory in Hotan county, Xinjiang, China.
UN report finds ‘serious’ human rights abuses in Xinjiang. (Shutterstock)

UN Report Finds ‘Serious’ Human Rights Abuses in Xinjiang

According to a long-awaited report from UN High Commissioner for Human Rights Michelle Bachelet, China committed “serious human rights abuses’' against ethnic Muslims in the Xinjiang region that “may constitute crimes against humanity.” Bachelet, the first UN Human Rights Chief to visit China since 2005, wasn’t allowed to meet detained Uighurs on her trip, but cited testimony alleging “patterns of torture or other forms of cruel, inhuman or degrading treatment or punishment.” China, which has been accused of genocide by the US, UK and Canada among other countries, rejected the report, saying it was “based on the disinformation and lies fabricated by anti-China forces” and that it “wantonly smears and slanders China”. The Chinese government describes its actions in Xinjiang as an anti-terrorist campaign within the rule of law. (Bloomberg)

Xi Places Chengdu, Guangzhou and Shenzhen in Lockdown Ahead of Party Congress

Millions of people across China, including those living in key fashion markets such as Chengdu, Guangzhou and Shenzhen, have been placed under semi-lockdown ahead of the 20th Party Congress, which will begin on Oct. 16 in Beijing. The Congress, which is held every five years and is a major political event in the country, is expected to reconfirm President Xi Jinping for an unprecedented third term in power. China’s National Health Commission also expanded testing nationwide between Sept.10 and Oct. 31, with travellers required to exhibit a 48-hour negative test result, urged people to stay home during the Mid-Autumn Festival and the week-long National Day holiday, and said large gatherings should be postponed until after October. Semi-lockdown measures such as the closure of offices, schools and non-essential shops are part of President Xi’s zero-Covid strategy, which has weakened the country’s economic growth and fuelled discontent among some ordinary people. (The Guardian)

China’s August Factory Activity Shrinks, Exports Miss Forecast

China’s Caixin/Markit manufacturing purchasing managers’ index (PMI) fell to 49.5 in August, below the 50-point mark that separates contraction from growth, as weakening demand, a struggling property sector, Covid-19 outbreaks and power-rationing measures disrupted production. Manufacturers cut jobs and orders of materials due to dwindling new orders. In August, exports grew 7.1 percent year on year, a substantial slowdown from the 18 percent gain of July and missing estimates of a 12.8 percent increase. To help the faltering economy, the government announced that it will accelerate the stimulus rollout in the third quarter. (Reuters)

China Decoded wants to hear from you. Send tips, suggestions, complaints and compliments to robb.young@businessoffashion.com.

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