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400%Increase in number of Hermes stores in China from 2005 to 2011

Understanding China's growing love for luxury

Stride through China's gleaming new high-end shopping malls and glitzy boutiques and expect to see shoppers on a mission. China's swelling class of wealthy consumers have the cash, and are willing and able to spend it on what, just unitl a few years ago, was well beyond their reach. Today, luxury goods are the de rigeur symbols of wealth and social status in China.

The world's priciest and most prestigious luxury brands are scrambling to erect massive retail shrines in urban China's toniest shopping distrcits. Louis Vuitton now has 36 stores in 29 cities across mainland China, compared to stores in just 10 cities in 2005. Gucci has expanded even faster, starting with just six stores in the beginning of 2006, ramping up to 39 stores today. Hermes quadrupled the number of stores, from five in 2005 to 20 today.

There's a reason for the rush: while many other markets are flat or shrinking, luxury goods are booming in China. Even in the teeth of the global recession in 2009, luxury goods saw 16% sales growth, a moderate slide from the 20% level of the previous few years, but still far better than many major luxury markets. Sales in that year hit RMB 64 billion (about $10 billion). Robust economic growth rekindled the market in 2010 and , according to our research, the market is on track to reach RMB 180 billion in 2015. By then, China will account for more than 20% of the global luxury market, overtaking Japan as the world's largest (see Exhibit 1 on attached PDF).

Who are China's luxury consumers? What are they looing for? How do they make decisions? And how do they differ from their counterparts elsewhere?

To answer these questions, McKinsey conducted an extensive survey of more than 1,500 luxury consumers across 17 cities in the spring of 2010. Our research paints a picture of a rapidly-growing pool of increasingly sophisticated and discerning consumers of luxury goods in China. This report highlights three key findings of relevance to luxury-goods marketers in China.

First, rapid increases in wealth, and shifting social mores that sanction the display of that wealth, are driving a growing infatuation for luxury goods.

Second, access to an explosion of information on the Internet, an increasing penchant for overseas travel, and first-hand experience purchasing and consuming luxury goods, are contributing to a substantial rise in sophistication. Contrary to popular belief, a growing number of Chinese luxury consumers are exhibiting a noticeable trend away from overt displays of wealth, and towards more understated forms of luxury consumption.

And third, rapid urbanization and growing wealth outside China's largest cities is driving the emergence of several new geographic markets with sizeable pools of luxury-goods consumers. Over the next five years, we expect that the number of such cities will double from 30 to 60.

For the rest of the report, download the attached PDF.