Five years ago we would hear stories about the young, entry-level office receptionist working at a multinational in Shanghai who would save up three months of her salary in order to purchase a Louis Vuitton bag. Those days are long gone, and we now have to understand a new normal for the marketplace for luxury goods in China. Two things have happened:1. Chinese consumer spending is no longer driven by the elite or top 1%
2. The upper middleclass consumer is not spending irrationally like before
Although these shifts are taking place this middle-class consumer may soon be ready to spend on luxury again. If you want proof of the desire to upgrade in China just look at the continual expansion of Starbucks versus the decline of KFC. In fact, China has the second most millionaires in the world with figures in a 2014 Boston Consulting Group Global Wealth Report listing 2.4mn, trailing the US number of 7.1mn. Another report by AliResearch and BCG pegs the number of upper middle class and affluent households (annual disposable income over USD24,000) to double to a whopping 100mn between 2015 and 2020. So we can see that the consumer market for luxury products exists and is going to increase.
A New Hope
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