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Generation Z consumers are online big spenders for luxury goods, survey reports

More than a third of Chinese luxury shoppers already buy luxury products across both offline and online channels, with Generation Z becoming the largest group of consumers, according to the latest OC&C survey.

Global consulting firm OC&C Strategy Consultants today has released a report entitled “Bridging the trust gap – The end of the luxury e-commerce dilemma in China”, which aims to offer luxury brands insights into Chinese consumers’ preference on luxury brand spending, in particular the online channels.

According to the survey, online luxury shoppers are growing across all generations but represent a higher share of younger age groups, with more Gen Z respondents (born after 1995) (59%) saying that they are shopping online, compared to millennials (born between 1980 and 1995) (37%) and Gen X (born between 1960 and 1980) (26%). However Gen X respondents said they are keen to shop more often online in the future.

The survey finds 50% of Chinese Gen Z luxury shoppers spent more than RMB 50,000 last year, compared to only 32% for millennials and 34% for Gen X. 66% of Gen Z respondents agreed that “price is not my main consideration, finding items I like is most important” whereas the percentage agreeing with the same statement was 48% for Gen X and millennials.

“Gen Z consumers are more inclined to spend on luxury goods than older generations for several reasons: they are often still living with their parents because they have little hope of buying their own apartment when property is so unaffordable. And because they’re not motivated to save, they have more disposable income. They also have a different work ethic and set of values to their parents – they are more open to enjoying life,” said Veronica Wang, associate partner at OC&C Strategy Consultants.

With regards to “assortment”, there are differences between the generations: Gen Z shoppers are looking for the latest in-season products as a unique statement of their personality while older customers are prefer a wider choice of stock keep units (SKUs).

Pascal Martin, partner at OC&C Strategy Consultants, commented that after a three-year slowdown in 2013-2015, the China luxury market is back on a solid growth trajectory. This recovery has largely been driven by the strength of domestic consumption, stimulated by favorable government policies and adjustments made by most brands to bring China prices closer to European and US prices.

“Chinese customers account for 25% to 35% of global luxury sales and most of it (65% to 75%) is happening outside of China. However, shrinking price gaps between China and the rest of the world have been driving Chinese purchases back to China and most of this growth has been happening online,” said Martin.

According to OC&C, online sales now represent 9% of China luxury fashion and accessories sales. But online penetration is still low compared to other product categories in China.

Key factors for driving online luxury purchases

When it comes to choosing which online platform to shop on, “guarantee of authenticity” came up as the number one selection criteria. Customers want to be reassured about the origin of products and “product traceability” emerged as a pre-requisite to win online.

The survey also shows that better choice (more brands, more products, more exclusive offerings) (30%) was indicated as the key factor to drive online luxury purchases, a very different set of factors if compared with those expressed in favor of offline shopping, which were centred around authenticity (35%) and services (26%).

“Convenience” (29%) is also an important dimension for customers shopping for luxury brands online. Before or during transaction, being able to talk to a representative and having flexible payment options are key services expected from online platforms. In addition, after-sales services such as a flexible return policy and product maintenance are also important to facilitate a smooth shopping experience.

“The implication is that the online and offline experiences remain complementary and ‘require each other’ to fulfill all customer needs on different occasions. Therefore their co-existence is likely to last and prosper. The strategic decision for brands is to figure out the right balance between online and offline presence and to be clear on each one’s role and purpose,” commented Martin.

Creating multi-touchpoints for customer engagement

Brands’ e-commerce platforms are not only important for commercial transactions, but also critical to building brand awareness. Online shoppers responded that they rely on a variety of online channels to learn about luxury trends and luxury brands, including official websites and social media sites (40%), generalist platforms (36%), consumer reviews from social media (33%), online forums and magazines (30%), more than on the visit of offline stores (23%).

“More brands can be presented through multiple platforms and touchpoints, not only through their own brand.com website but also through third-party websites. This increases their chances to influence customers’ discovery and purchasing journey,” said Wang.

Wong continued: “Over the past few years, many brands have started to engage in collaborations with WeChat to connect with their customers and to attract new ones among younger generations. However, most of these collaborations are still experimental, consisting of events and pop-up stores with limited assortment for limited periods of time.”

“For luxury companies, e-commerce can no longer be about setting up an ‘e-commerce department’ separate from other existing channels. Instead, it should aim at linking online and offline channels to create a seamless integrated multi-touch point journey. The shift to an omni-channel business model is necessary and inevitable,” concluded Martin.

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