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Softening demand for luxury in China has raised alarm bells for the industry. While there are several factors at play, some are pointing to growing evidence of ‘luxury shame’, the phenomenon whereby high-net-worth individuals (HNWI) have spending power, but choose not flex it for fear of being demonised as others tighten their belts.
Attitudes towards luxury have been shifting in China amid a government crackdown on influencers that flaunt their wealth and extravagant lifestyles on social media, resulting in cross-platform bans for high-profile personalities such as Wang Hongquanxing (nicknamed China’s Kim Kardashian), Baoyu Jiajie and Bo Gongzi. “Once materialism starts spreading, it can have a bad influence on teenagers… Hence this trend of luxury on the internet needs to be stopped,” state media Beijing News wrote in May, as these influencers began digitally disappearing from view.
This, combined with the economic slowdown in China, rising unemployment and a real estate crisis, have drastically reduced middle-class consumer confidence and spending on luxury goods. Observers are drawing parallels with the US during the 2008 financial crisis. During that time, wealthy Americans felt “ashamed to show off their wealth”, says Claudia D’Arpizio, senior partner at management consultancy Bain.
The impact on luxury became clear in the latest round of earnings, which showed a continued polarisation of performance. While some luxury brands are suffering sharp declines in China — notably Burberry, Gucci and Saint Laurent — megabrands at the top of the pricing pyramid, such as Hermès, Chanel and Louis Vuitton, are still performing well. Hermès said sales were up 12 per cent in the Asia-Pacific region in the first half of 2024.
Aaron Lau, founder and CEO of brand-tech and marketing firm Gusto Collective, says the economic downturn in China is reshaping customer behaviour, noting that shoppers are becoming more “discerning when it comes to luxury purchases”. However, this reflects a bigger cultural shift, he says. Chinese customers are buying less because they are “more selective, more pragmatic” and “focusing on well-known brands with easily recognisable value, and/or brands that retain value”, he adds. “They want to maximise the return on their luxury investments.”
As a result, luxury’s outlook in the second half of 2024 and beyond remains unclear. In January, Bain forecasted mid-single-digit growth for luxury in China this year, following a pandemic rebound in 2023, which is starting to look optimistic. “With [China’s] consumer confidence going down, there’s overall uncertainty in the future,” says D’Arpizio. “Even if luxury consumption grows by single digits in Mainland China, the situation is particularly depressing and the performance of luxury is going to be very different brand by brand.”
A changing attitude
The luxury industry once relied on the fast growth of the Chinese market, which tripled in size between 2017 and 2021, according to Bain. However, as the Chinese economy continues to decline, the once-aspirational middle classes are pulling back on luxury spend just because it’s ‘on-trend’.
Instead, they are increasingly opting for classic products that they believe will retain value over time. Larger, more practical handbags, for example, such as Louis Vuitton’s Carryall, Chanel’s 22 collection and Loewe’s Puzzle tote remain popular, according to a survey by China Newsweek. Iconic bags — in line with luxury watches and jewellery — saw significant growth in China last year, per Daxue Consulting research published in March.
“The fundamental value of high-end fashion items in China is facing intense scrutiny, a situation that is unusual even during more stable economic periods,” says Pooky Lee, fashion curator and co-founder of creative agency Poptag.
A pulse check with consumers backs this up. “My friends and I are less inclined towards trendy items and no longer pursue the latest releases,” says Shenzhen-born Kayla He. “I personally continue to favour brands like Chanel for their timeless appeal, that are more suitable for my personal style.” Chanel reported double-digit percentage growth in Asia last year; and plans to open more stores in the country (where it is relatively under-indexed with 18 stores, as of May).
Chinese are still spending, but elsewhere
Despite the slowdown domestically, China’s global luxury consumption is expected to return to pre-pandemic levels this year as the Chinese resume international travel. The number of outbound Chinese travellers is set to reach 130 million this year, up from 87 million last year (but still not at pre-pandemic levels of 155 million in 2019), according to the China Tourism Academy.
Japan and Thailand topped the list of Asian destinations for Chinese tourists heading abroad this summer, according to data from aviation data agency Cirium, travel industry consultancy Forwardkeys and several online booking sites, thanks to the weakness of the yen in Japan and the visa-free policy in Thailand.
Japan emerged as the region with the strongest sales performance across the majority of luxury players who reported their Q2 results. LVMH’s first-quarter sales underlined the trend: overall revenue in Asia declined by 6 per cent, but in Japan surged 32 per cent. “The weak yen creates the equivalent of a deflationary situation in China. If Chinese consumers can’t buy it at Japanese prices, they will stop buying and wait until they go to Japan,” said LVMH CFO Jean-Jacques Guiony on its first-half earnings call last month.
Migration patterns, too, show that China’s spending power is shifting to other countries.
China experienced the largest global outflow of HNWIs last year and is projected to see a record exodus of 15,200 this year, according to a report by investment migration firm Henley Partners. The report notes that, alongside traditional destinations such as Singapore, the US and Canada, Tokyo has become an increasingly favoured location for Chinese HNWIs in the post-Covid era, elevating Japan to a prominent position in this year’s top 10 migration destinations.
“Brands may need to consider how to attract Chinese consumers to shop domestically by offering unique shopping experiences, adjusting global pricing strategies as well as offering unique localised drops,” Lau suggests. To offset the impact of the weak yen, some luxury brands have already raised prices in Japan, The Wall Street Journal reports. Many brands are implementing “tactical price increases”, Kering CFO Armelle Poulou confirmed during its H1 earnings call this July.
Who’s winning?
Despite the challenges, some brands are finding success in China. Hermès says the changes in consumer behaviour are beneficial for blue-chip luxury brands: “They [Chinese consumers] are currently looking for high-quality products, which is good for us. They don’t necessarily want a logo to be affixed to what they buy,” said Hermès CEO Axel Dumas in the heritage house’s H1 earnings call.
Prada posted a 12 per cent uptick in sales in the Asia-Pacific region in the first half of 2024, which observers put down to its implementation of a culturally relevant strategy. “Prada has adopted a highly tailored, responsive marketing approach to cater to various segments and demographics in China, helping the brand stay prominent in the market,” notes Lee.
For instance, the brand enlisted the household comedian-turned-director Jia Ling as its latest ambassador. The move received widespread acclaim from Chinese netizens, who viewed it as a strategic win. Prada is also expanding its cultural influence by endorsing sports in China; last year, the brand became an official partner of China’s Women’s National Football team, earning additional praise online.
Prada plans to double its business in China by increasing distribution efforts, investing in larger physical stores and offering more exclusive products to cater to VICs, CEO Gianfranco D’Attis said during the ‘Pradasphere’ event in Shanghai last December. .
Offering fresh designs and adopting a nimble approach to product offerings is another way to succeed in China. Canada Goose’s sales in Greater China grew 29.7 per cent in the final quarter of 2024, and by a further 12.3 per cent in the first quarter of FY 2025, which ends on 30 June. The Canadian outerwear brand recently appointed Haider Ackermann as its first creative director and launched his inaugural designs, resulting in increased media coverage, social media engagement and follower growth across Greater China.
Canada Goose’s success has been supported by its expansion in retail, improvements in consumer experiences and a more localised product assortment, the company tells Vogue Business.
What’s next for luxury in China?
In the second half of the year, Zhou Ting, head of Shanghai-based luxury research agency Yaok Institute, forecasts that “the downward trend will moderate, and consumer outflows will be partially curbed. Growth is expected, but it will be modest, with annual growth likely staying in the single digits.”
Will luxury shame linger?
This will largely depend on the Chinese government and whether it starts pushing consumption to boost the economy, says D’Arpizio. However, she notes that it’s unlikely to last forever. “Even the luxury shame in the US before, which resulted from a much deeper crisis, was not a permanent phenomenon. It’s difficult to say how long it will last in China. But brands will continue to invest as it remains the most strategic market for them.”
“The economy is facing challenges, but the overall Chinese market remains substantial,” Lee agrees. He suggests that brands should move away from strategies overly reliant on celebrities and explore diverse marketing approaches to rejuvenate their appeal to customers. Lau adds that personalised services, unique shopping experiences and deep localisation are also key to winning in the Chinese market.
Thomas Piachaud, head of strategy for luxury data solutions agency Re-Hub, believes that high-end brands should also pay attention to build meaningful cultural connections with customers, for instance brands can provide escapism, a sense of wonderment or a community feel, not serving to alienate one from the other, but instead acting as a catalyst for connection.
“Luxury brands should also keep everyday consumers close under this shift, because not just the VIPs, but everyone, has a say about them in China,” Yaling Jiang, founder of consumer-focused consultancy ApertureChina, concludes.
Key takeaway: The Chinese market is no longer an easy win. The middle class is cutting back on spending, as wealthy individuals are leaving the country, contributing to a significant drop in local luxury demand. Brands can still capitalise on the opportunities by developing culturally relevant strategies and offering fresh designs. The cautious sentiment surrounding luxury spending in China will not last forever, however any growth in the second half of the year may depend on government messaging around consumption.
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