Why luxury brands cannot depend on Chinese millennials for future prosperity
A new report by Yaok Institute finds that millennials are ‘marginal’ consumers, who don’t make enough purchases to be considered a sustainable source of revenue
This article was written by Ruonan Zheng for Jing Daily
Luxury brands still see Chinese millennial shoppers as powerful consumers as they are the demographic that most contributed to global luxury growth in 2017, as reported by Bain & Company. However, a new report from the Chinese research agency Yaok Institute, published on January 14, questions whether the millennial market in China is a sustainable revenue source for luxury brands.
Defined as those born from 1982 to 1997, millennials have been described as “marginal consumers” by the report, meaning that they are part of the Chinese middle class and may only make one or two luxury purchases a year.
As China’s economic development accelerates and millennials continue to mature, the Chinese middle class has split into two groups: a smaller group of affluent consumers that continue to buy an abundance of luxury items and the rest – a group that has downgraded their consumption to “marginal consumer” status.
The luxury market’s core consumers, who treat luxury goods like necessities, each own assets worth over US$1.5 million, and, according to the research, there are about 4 million of them that account for a whopping 60 per cent of luxury consumption.
As luxury brands have had to face the reality of losing some core consumers, they have begun to seek different ways to lure “marginal consumers” into buying more luxury products, such as diversifying product lines, launching more lower-priced goods, and inventing new ways to discount products. However, the report cited that for every three marginal consumers each brand attracts, they risk losing one core consumer because of their tactics trying to lure marginal consumers. So, they gain more consumers, but not more sales.
The report argues that Chinese millennial consumers are mostly marginal consumers. They are the fastest growing demographic in China, they are not afraid to spend in advance, and they are often early adopters of new trends, but there are many reasons luxury brands cannot rely on them for future growth:
Most millennials still rely on their parents for financial support, so they do not have much power to generate sales on their own.