China’s young consumers especially Generation Z—those born after about 1995—with significant spending power and impulsive buying habits, are going to drive luxury market growth, according to a new report.

Already dominating the global luxury market, Chinese customers will account for more than 45% of the personal luxury goods market by 2025, with half of their purchases happening in Mainland China, according to Bain and Company’s Luxury Goods Worldwide Market Study, Spring 2019. The report calls the Chinese Gen Z “the segment to watch” in the luxury market.

The sale of luxury goods in the world’s second-largest economy is driven by price harmonisation, consumer-centered strategies, and governmental initiatives. The Asian country will see year-on-year growth of 18%-20% (at constant exchange rates) in the segment backed by solid consumer confidence and willingness to buy, especially among young generations, the report says.

However, for mainland Chinese consumers, cross-border luxury shopping is on a declining trend, while evolving U.S.-China trade agreements pose potential risk to luxury consumers’ confidence in the coming months, according to Bain.

For Asia at large, the consultancy sees a positive growth trend in luxury items across the entire region, except in Hong Kong and Macau, affected by reduced tourist spending. For southeast Asian countries, rising disposable incomes will fuel growth, with Indonesia, Philippines, and Vietnam in the spotlight. Bain also expects sustained growth in South Korea, particularly in downtown locations.

Meanwhile, the U.S. luxury market remains strong, fueled by strong domestic consumption, despite ongoing changes in the U.S. tax plan creating temporary uncertainties, according to the consulting firm.

Globally, the personal luxury market grew 6% to €260 billion in sales in 2018, and is expected to rise to €271-276 billion in 2019, registering a 4%-6% growth at constant exchange rates, says Bain.

The report also says that sustainability and social responsibility are gaining momentum in the luxury space as consumers become more conscious of environmental issues, human labour and animal welfare.

The consulting firm also sees digital disrupting the entire luxury value chain, which will lead to a redesign of the technology ecosystem. It sees online representing 25% of global market value, with 100% of luxury purchases digitally enabled by 2025.

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