McKinsey presentation

WORKINGDRAFTLastModified3/31/20112:44:18PMChinaStandardTimePrinted3/31/20112:45:16PMChinaStandardTimeCONFIDENTIALANDPROPRIETARYAnyuseofthismaterialwithoutspecificpermissionofMcKinsey&CompanyisstrictlyprohibitedMarch2011UnderstandingChina’sGrowingLoveforLuxuryMcKinsey&Company1|Abouttheresearch▪Interviewedover1,500luxuryconsumersacross17cities.Combinedwithour2009wealthyconsumerstudyandextensiveurbanizationmodelcoveringover800cities,thisresearchoffersalongitudinalviewofChina’sluxurymarketsizing,consumerattitudesandpurchasingbehavior,aswellasauniquesegmentationapproach.ScaleofresearchIndustryperspectivesAnalyticalapproachResearchmethodology▪Face-to-faceinterviewsofbetween35and45minuteswithChineseluxuryconsumers.Respondentswereselectedfrom17differentcitiesacrossseveralgeographicregionsofChina.Ofthesecities,3wereTier1,9wereTier2,and5wereTier3.Theselectionprocessensureddiversityofage,gender,occupationandotherkeydemographicfactors▪Extensiveinterviewswithbrandmanagersandmarketingspecialistsfromleadingluxurybrandsacrossarangeofproductcategories▪Factoranalysistoidentifykeythemesaroundconsumers’attitudesabouttheirlifestyleandluxuryconsumption.Clusteranalysistoarriveataneeds-basedsegmentationofluxuryconsumers.McKinsey&Company2|TableofcontentsGrowthanddriversofChina’sluxurymarketUnderstandingChina’sluxuryconsumersImplicationsforluxuryplayersMcKinsey&Company3|SOURCE:McKinseyInsightsChina-WealthyConsumerStudies(2008,2010);DeutscheBank;interviews;literaturesearchChineseluxuryconsumptionisprojectedtogrow18%annuallyfrom2010to2015,accountingforover20%ofthegloballuxurymarket1Luxurygoodsincludefashionreadytowear,leathergoods/handbags,watchesandfinejewelry22010realRMBCAGR(‘10-‘15)GlobalsharePercent6810201Luxurygoodsconsumption1inChina1998-2015BillionRMB2182015E~1802010E199820082009~80645551.GrowthanddriversofChina’sluxurymarketMcKinsey&Company4|12010realRMB2Includinghouseholdswithassetsover10MNLuxuryconsumptiongrowthwillbeprimarilydrivenbyuppermiddleclassandwealthyconsumers12221155K55-100K100-200K200-300K300K-1MN1MN22015~18003437332010~80154526SOURCE:McKinseyInsightsChina-WealthyConsumerStudies(2008,2010);teamanalysis3825544328655K55-100K100-200K200K2015273420102232-4430418ShareofurbanhouseholdsbyhouseholdincomeclassMillionsofhouseholds,PercentCAGR(’10-’15)PercentShareofluxurygoodsconsumptionbyhouseholdincomeclassBillionRMB1,PercentCAGR(’10-’15)Percent-61834-61525Aspirants(55k)Lowermiddleclass(55-100k)Uppermiddleclass(100-200k)MassAffluent(200-300k)Wealthy(300k+)20102015CAGR1MN20.20.420300K-1MN1.22.015200-300K0.71.2181.GrowthanddriversofChina’sluxurymarketMcKinsey&Company5|192727261817202218CAGR2010-15Shareofgrowth2010-15Despitethegrowthofsmallercities,thetop36marketswillcontinuetoaccountforoverthree-quartersofluxurysalesinChina21242526100%=RestofChinaNext25citiesNext9citiesTop2cities2015~180202010~8030332112010realRMBTotalluxurygoodsconsumptionBillionRMB1,percentSOURCE:McKinseyInsightsChina;teamanalysisTop36cities▪WhileChina’slargestcitieswillcontinuetoremaincentersofgravity,themarketislikelytogrowatafasterpaceinsmallercities▪Atthesametime,themarketwillremainconcentratedin36cities,accountingfor74%marketgrowthand76%ofluxurysalesby20151.GrowthanddriversofChina’sluxurymarketMcKinsey&Company6|12010realRMBSOURCE:McKinseyInsightsChina;teamanalysisClassifyingcitiesbyincomedevelopmentstageoffersabetterapproachtoprioritizingluxurymarketpotentialthanthetraditionalcitytiersystemBillionRMB1,PercentTIER2CITYEXAMPLENanchangWenzhouWuhanBeijing25developedcities9largecitiesRemainingcities2megacitiesNanchangLuxuryspend2010:0.2Luxuryspend2015:0.5CAGR,10-15:26%WenzhouLuxuryspend2010:1.8Luxuryspend2015:4.0CAGR,10-15:18%WuhanLuxuryspend2010:0.9Luxuryspend2015:2.8CAGR,10-15:27%1611142240244757100-200K55-100K55K5621183Wuhan6AverageT2cities7139231.0Nanchang3.836300K12Wenzhou1.5200-300KThoughclassifiedasT2cities,incomedevelopmentvariessignificantlyTier2householdsbyincomein2015(Millionsofhouseholds,percent)1.GrowthanddriversofChina’sluxurymarketMcKinsey&Company7|TableofcontentsUnderstandingChina’sluxuryconsumersImplicationsforluxuryplayersGrowthanddriversofChina’sluxurymarketMcKinsey&Company8|OptimisticaboutfinancialfuturePercentageofrespondentsstronglyagreeandagree,2010Profileofluxuryconsumers1byagePercentageofluxuryconsumers,2010“Myhouseholdincomewillsignificantlyincreaseinthenext5years”SOURCE:McKinseyInsightsChina-WealthyConsumerStudy(2010);MckinseyEuroLuxuryConsumerStudy(2010)LuxuryconsumersinChinaareyoungerthanglobalpeersandareveryoptimisticabouttheirfinancialfuture726359NationalaverageLuxuryconsumers(Wealthy2)Luxuryconsumers(LessWealthy2)263136293236100%45-6535-4418-34UK28France37China451Luxuryconsumersaredefinedasconsumerswhohaveboughtatleastoneluxuryproduct(ready-towear,shoes,bags,jewelry,orwatches)inpast12months.2Wealthyisdefinedasannualhouseholdincomemorethan250kRMB;Lesswealthyisdefinedasannualhouseholdincomebetween35-249KRMB2.UnderstandingChina’sluxuryconsumersMcKinsey&Company9|4814JapanWealthy1Lesswealthy1Comparedtodevelopedmarkets,Ch