Cracking Chinese Puzzle the Challenge for Luxury Retailers

Russian mining giant ALROSA this week released details of research into diamond jewelry consumers in the US and China. The main conclusions? Consumers in both countries are interested in buying diamond jewelry, are planning to buy it in the future, and purchase jewelry for themselves much more often than as a gift to others.

I was somewhat surprised to read that 86% of Chinese respondents, but only 59% of respondents in the USA, plan to buy at least one piece of diamond jewelry next year. Given that the USA is the world's largest consumer market of diamond jewelry, and despite taking into account that China is a fast growing market, one might have expected the figures to be the other way around.

The research was conducted last Fall among a total of more than 4,000 men and women from the USA and China aged 25 to 55 years, with average or above average income, who bought or received diamond jewelry as a gift within the last 12 months people.

Diamond jewelry buyers are not only loyal consumers thinking a diamond is a good acquisition for themselves, but they are also ready to share this opinion with their friends. According to the research, about 34% of respondents in China and 37% of those interviewed in the USA say that if their friends sought their advice on a present to a loved one, they would recommend diamond jewelry as a gift.

On average, 44% of Chinese consumers and 38% of US consumers bought one piece of diamond jewelry last year. 34% of respondents from China and 30% of respondents from the USA make two purchases a year. Every seventh consumer in China and almost every fifth consumer in the USA buy three pieces of jewelry a year, the report added.

It is, of course, good news for the diamond jewelry market that luxury goods hold such a cachet among Chinese consumers. I read a report this week which cited a young Chinese woman as saying that she spends one-fifth of her salary on luxury items. However, with an annual salary of just 50,000 yuan (US$7,900) and a vast array of luxury items from which to choose, one is left wondering just how many diamond jewelry items she is likely to buy

The woman, aged 24, and an accountant, along with many in her age group and socio-economic status, were behind a sharp rise in luxury spending in China last year, according to consultancy Bain & Co. They are the key demographic for luxury brands.

They are willing to spend on luxury goods, and often more than they can afford. And they are typically less loyal to traditional brands, swayed by shifting trends online and increasingly looking for deals. All of that shows just how challenging is the task for the Diamond Producers Association which will be expanding its campaign into China this year, after starting in the US in 2016, and moving into India last year.

Millennial Chinese buy because online shopping makes it easy and they are often aided by their parents who have enjoyed the benefits of the country's dizzying growth during the past two decades or so and rising home prices. Thanks to Millennial shoppers, the Chinese luxury goods market soared 20% to around $22 billion last year. It was by far the largest rise after five years of listless growth, according to consultants Bain & Co.

Luxury goods bought in China account for 8% of global sales, while Chinese shoppers because they make 75% of their luxury purchases abroad, are behind 32% of sales globally.

But Chinese consumers appear to be characterized by the fact that trends are fluid and they want high-quality products at competitive prices. They are not committed to brands as seen by the fact that they are willing to buy used goods. Consumers are making new purchases in the knowledge they can sell their goods later, thus reducing the cost of a big-ticket purchase.

As mentioned previously, all of this presents a huge challenge for the DPA in finding the right mix of marketing and advertising that will persuade younger Chinese that diamond jewelry is not a passing fad but, rather, items that can and should mark milestone events.