Consumer trends in Asia that have been spurred by new dynamics during Covid-19 suggest a growing relevance for luxury in portfolios.
“People are turning to brands that provide security, and that they can trust,” said Swetha Ramachandran, investment manager in luxury brands equity strategies at Gam, at a media briefing last week.
For example, in line with the focus on health and well-being, embracing luxury at home appears likely to become a lasting legacy of the pandemic. Based on similar drivers, the last 12- to 15-months have also seen new consumers participating in the luxury goods space
At the same time, more consumers are seeking goods that tick the sustainability box, in turn influencing buying behaviour towards better-quality – but fewer – items, as well as creating appetite for second-hand purchases.
Ramachandran pointed to a Bain study that highlighted Gen Z as “maturing into a cohort of adults who will reward brands that have a positive impact on the environment and society – and disconnect from those that do the opposite”.
The pandemic has also fuelled an era of digital fashion, which has engaged new groups of consumers. This furthers the sustainability agenda that both brands and consumers are gradually adopting in their respective practices, she added.
Demographics driving demand
Key to luxury demand in Asia is the middle class market – while it is projected to grow at 0.5% per year in the US, the Eurozone and Japan, growth of 6% or more is expected in China and India.
Across the region, Asia’s middle class will likely drive 80% of new consumer spending over the next five years, said Ramachandran.
More specifically, Asia is on track to represent two thirds of the global middle class population by 2030, with China and India alone to represent over 43% by this time.
By generation, meanwhile, millennials and Gen Z are 40% of demand today, driving all of global growth.
In targeting this demographic in Asia, brand collaborations especially resonate with these consumers. This is reflected in the fact that brands have to constantly innovate to reinvent themselves, since they can no longer rely on past loyalty.
Chasing China’s young
By geography, Chinese customers are expected to make the biggest contribution to growth in Asia’s luxury sector going forward. “China is evolving from the world’s factory to the world’s consumer,” Ramachandran added.
Luxury brands are also in demand beyond Tier 1 cities, as the population of well-to-do consumers has increased significantly in lower tier cities. In fact, the percentage of middle and affluent households in lower tier cities is now in line with the proportion that existed in higher tier cities five years ago.
China is representative of luxury being in the early stage of growth in emerging markets – with more than twice the number of young, potential luxury consumers across India, South-east Asia, Brazil, Russia, the UAE and Saudi Arabia.
Notable in Southeast Asia, said Ramachandran, is the forecast growth of mass-affluent consumers to 137 million people, around 20% of the region’s population, by 2030.
“The mass affluent account for about half of consumer spending in certain categories such as cars, leisure travel, and watches and jewellery,” she explained.