Editor’s Note
This analysis applies Porter’s Five Forces model to China’s domestic luxury goods sector, highlighting a challenging growth landscape. It examines key competitive pressures, including supplier and consumer dynamics.
An analysis of China’s domestic luxury goods industry using Porter’s Five Forces model reveals that the current growth environment for domestic luxury goods in China faces significant challenges.
From the perspective of suppliers, there are numerous raw material manufacturers in China’s luxury goods industry, resulting in relatively low bargaining power for suppliers.
From the perspective of consumer bargaining power, the luxury goods industry generally has high-pricing attributes, giving companies relatively strong bargaining power over consumers.
From the threat of new entrants, China’s domestic luxury goods industry is in a rapid development stage. Taking the jewelry and accessories sector as an example, the industry barriers are relatively low, with no technological added value, making it a labor-intensive industry. However, because the products themselves have high value, if combined with excellent “brand storytelling,” brand premium is more easily achieved. Therefore, the threat from potential new entrants is relatively high.
From the threat of substitutes, the threat of substitutes in China’s domestic luxury goods market is relatively the greatest. The main reason is that the domestic luxury goods market has long been dominated by foreign luxury brands. The consumption habits and perceptions of luxury goods consumers have been subtly shaped by international luxury brands. As substitutes, foreign luxury goods pose a significant threat to the domestic luxury goods market.
From the perspective of competition among existing enterprises, there are currently a relatively large number of participants in various luxury goods categories in China, indicating fierce industry competition.
Major listed companies in the industry include: Chow Tai Fook (HK01929); Lao Feng Xiang (600612.SH); Semir (002563.SZ); Heilan Home (600398.SH); Shanghai Jahwa (600315.SH); Proya (603605.SH); Fiyta (000026.SZ); Kweichow Moutai (600519.SH); Wuliangye (000858.SZ), etc.
The luxury goods industry encompasses numerous segmented product categories. The competitive factions in China’s luxury goods industry can be divided by product type into high-end fashion, jewelry, watches, leather goods, cosmetics, tobacco and alcohol, etc. Among them, the main participants in the jewelry market include Chow Tai Fook, Lao Feng Xiang, Chow Tai Seng, etc.; the cosmetics market includes Proya, Shanghai Jahwa, Marubi, etc.; the baijiu (white liquor) market includes Kweichow Moutai, Wuliangye, Luzhou Laojiao, etc.
According to Deloitte’s recently released “Global Powers of Luxury Goods 2022” report, which announced the 2022 ranking of the world’s top 100 luxury goods companies, LVMH, Kering, and The Estée Lauder Companies continued to hold the top three positions. Others in the top ten include Chanel, L’Oréal Luxe, Richemont, Hermès, Chow Tai Fook, Rolex, and China Gold. The headquarters of the listed companies are mainly in Europe and the United States. A total of 11 companies from China (including Hong Kong) made the list. In addition to the two Chinese companies mentioned above, there are also Lao Feng Xiang, Chow Sang Sang, Chow Tai Seng, Luk Fook, CHJ Jewellery, MingR Jewelry, Lanvin Group, TSL Jewellery, and Icicle Carven Group.
Chinese consumers are one of the main drivers of the global luxury goods market. Data from Bain & Company’s “2023 China Luxury Market: The Year of Recovery and Transition” report shows that from 2011 to 2018, China’s luxury goods industry grew at a compound annual growth rate (CAGR) of 5%; from 2018 to 2021, it grew at a high CAGR of 40%. Preliminary estimates indicate that the mainland China luxury market, having undergone the dual tests of a challenging economic environment and the recovery of overseas consumption, saw sales grow by approximately 12%, reaching 475.6 billion yuan.
In China, different luxury sectors have different competitive dynamics. However, overall, the market structure of luxury brands across sectors shares two main characteristics: first, brand concentration is relatively high; second, foreign brands occupy a large portion of the market share, while the development of Chinese domestic luxury brands is slow.
For the Chinese market, except for traditional industries such as baijiu, tobacco, and rosewood furniture, the Chinese luxury market is dominated by foreign brands. Data from Bain’s statistics show that the top five brands in each category of China’s luxury goods industry account for about half of the market share, most of which are foreign brands.
Geographically, different categories of luxury goods in China form clusters in different provinces. Overall, China’s eastern region has strong luxury goods manufacturing capabilities and, correspondingly, strong capabilities in brand building, operation, and maintenance. China’s eastern region covers the manufacturing of luxury baijiu, jewelry, and high-end clothing, with specific participants including Yanghe Distillery, Gujing Distillery; Chow Tai Fook, Lao Feng Xiang; Shang Xia, Shanghai Tang, etc. Participants in the luxury goods industry in China’s western and southwestern regions are mainly in the baijiu industry, with representative brands like Kweichow Moutai, and others including Wuliangye, Jiannanchun, Shede Spirits, etc. There are a few baijiu enterprises in North China, but their products are mainly regional goods and do not fall into the luxury category.
Observing the geographical distribution of Chinese luxury goods enterprises, listed companies related to the luxury goods industry are mainly concentrated in East China and South China. These regions are not only economically developed with high per capita income levels but also have large market scales and mature consumer cultures, providing a solid foundation for the development of luxury goods enterprises.
In addition to East China and South China, some luxury goods enterprises are also distributed in Central China. Although the number is smaller compared to South China, the economic development and consumption upgrading in Central China are gradually showing demand for luxury goods. With the continuous development of China’s economy and the advancement of regional balanced development strategies, it can be foreseen that the luxury goods market in Central China will gradually expand, attracting more corporate attention and investment.
Furthermore, according to Bain’s research, all luxury categories rebounded in 2023. Specifically, the beauty and cosmetics category showed steady growth, with particularly strong growth in the two sub-categories of perfume and makeup; the fashion, leather goods, and jewelry categories recovered well, with leather goods performing slightly weaker than the other two major categories; the watch category had the weakest recovery momentum, with varying performance across brands.
More industry research and analysis can be found in the “China Luxury Goods Industry Market Outlook and Investment Strategy Planning Analysis Report” by the Qianzhan Industry Research Institute.