Luxury’s performance in China was uneven in Q1, defined by a feeling of uncertainty among consumers. In the latest round of earnings, some brands posted solid growth, while others saw sales drop as consumer sentiment continues to suffer. The next few months are set to be equally uncertain, analysts say.
Among the bright spots, Brunello Cucinelli said sales in Asia grew 11.3 per cent with double-digit improvements and “lively desire” for the brand’s heritage and craftsmanship in China. Moncler posted 6 per cent sales growth in Asia (on a tough comparison of 26 per cent growth in Q1 last year), and said that Mainland China along with Japan were major drivers. Prada Group said sales in Asia-Pacific grew 10 per cent, though CEO Andrea Guerra said Chinese consumers were volatile in their spending habits. Hermès noted sales edged up 1.2 per cent in Asia on a tough comparison of 14 per cent in Q1 2024 (Bernstein luxury goods analyst Luca Solca expects Hermès’s results in China to improve as the year progresses).
However, sales across LVMH’s fashion and leather goods brands in Asia (excluding Japan) dropped 11 per cent. Trends in China were “consistent with the end of last year” according to CFO Cécile Cabanis, with many Chinese consumers travelling to Japan to shop (where sales grew 32 per cent in Q1). Kering’s Asia-Pacific sales were down 25 per cent as demand in China struggled. At Zegna Group, Greater China revenues were down 11.6 per cent in Q1. Hugo Boss sales dropped 8 per cent in Asia due to China’s subdued demand. Burberry, which releases its preliminary 2024 results on 14 May, struggled in Q3, with sales in China down 7 per cent.
“Brands with a superior heritage and timeliness are the winners — like Hermès, Brunello Cucinelli, for example — or those who have the ability to intercept the most relevant fashion trends — like Miu Miu [analysts attribute Prada Group’s solid performance in the region to Miu Miu] and Loewe. The others are suffering,” says Mario Ortelli, managing partner of consultancy Ortelli Co.
Solca echoes this: “Chinese consumers are still prioritising ‘investment-grade’ brands — the top brands in each category — less than a handful of strong momentum brands, like Miu Miu and Moncler, and the top quiet luxury brands, Brunello Cucinelli and Loro Piana. Self-help stories like Burberry or [Kering-owned] Gucci are yet not making inroads.”
A period of uncertainty
While US President Donald Trump has scaled back his initially aggressive tariffs for most countries, China — which is a major US exporter and the US’s second largest importer of goods — is still in the line of fire. The two governments have been taking a tit-for-tat approach, escalating reciprocal tariffs throughout this year to as much as 145 per cent on Chinese imports to the US and 125 per cent on US imports to China. Last month, Trump also reversed the de minimis loophole, which allowed cheap Chinese goods to enter the US duty-free.
Spending during China’s five-day May Day holiday rose 8 per cent year-on-year, per Reuters, though it remained below pre-pandemic levels. However, analysts predict a knock-on impact on the economy from the trade war, which could lead to job insecurity, house price increases, salary decreases and inflation.
“The impact of the tariffs on the Chinese consumer is related to the impact on the Chinese economy,” says Ortelli. “If the Chinese economy is impacted by tariffs because they’re less able to export to the US or because the reciprocal tariffs with the US make it more expensive for them to buy US products in China, there will be a negative impact on consumer sentiment.”
“Uncertainty is going to linger and there may be further economic ramifications — we already know there aren’t as many shipments coming from China as there used to, some Chinese factories have seen a reduction in manufacturing capacity, and that may have a knock-on effect on wages,” says Neil Saunders, managing director of retail at data analytics firm Globaldata. “The vibe might be making people nervous now, but when it actually hits them in the pocket we could see further erosion.”
While it’s unlikely that the US and China will resolve their trade war any time soon, some experts are hopeful that economic stimulus packages from Beijing might soften the blow. China introduced a major stimulus package in September 2024, and announced further plans in March 2025 in the context of the trade tensions with the US. However, President Xi Jinping’s stimulus policies have been criticised as being too little and too late to truly drive economic growth, with some experts highlighting that there are deeper structural issues holding back consumption in China, which are not an easy fix — a shrinking population and the tensions between raising wages and maintaining manufacturing competitiveness, as well as taxing businesses versus encouraging investment.
What does it mean for luxury?
“When companies released their full-year results [for 2024], there was an idea that Q1 and Q2 [of 2025] would be slower but that there would be a comeback in demand in the second half,” says Ortelli. “Now businesses are more cautious, there are some question marks about whether the second half will be subdued. Even though consumer sentiment was low before tariffs, there was more optimism that the second half of the year would see an inflection point, but now they think maybe the soft demand environment will last longer.”
Solca, who travelled to China three weeks ago, says he saw “the early green shoots of what is likely to look like a protracted U-shaped luxury demand recovery”, such as higher real estate transaction volumes, reviving GDP growth and rising Chinese luxury spend in Europe. Despite that, many brands are still approaching the market with caution.
Many fashion brands have been diversifying away from Chinese manufacturing over the years — the brands on the lower end seeking out cheaper labour in Vietnam or Bangladesh, and some European brands nearshoring to the likes of Portugal or Türkiye. In the most recent round of earnings, luxury brands have been quick to assure investors that they have minimal sourcing exposure to China. In terms of sales, luxury brands have been diversifying their global markets, looking at high-growth regions like India, the Middle East, Japan and Southeast Asia.
“There’s a sense that China may not be as powerful an engine for growth going forward. That’s quite problematic for a lot of brands because traditionally they’ve pinned a lot of their hopes for financial success and growth on China being this powerhouse,” says Saunders. With a slowdown in the US happening concurrently and Europe relatively flat, this leaves brands in a tough spot.
Saunders says brands aren’t likely to abandon China and many are still investing in the region, but some may reformulate so they’re not putting a disproportionate emphasis on the region as the biggest driver of growth.
Experts reiterate that the most successful strategies in China are highly localised. “You have to plan in advance, orienting your marketing style and inventory to be specific to the country,” says Ortelli. He also adds that the most successful brands in China have positive momentum but are not overexposed. While in-person presence is essential for the Chinese consumer, Ortelli notes that the most successful brands in China — Brunello Cucinelli, Hermès, Miu Miu — have fewer stores than Burberry and Gucci, for example.
In line with the trend of the past few years, wealthy Chinese consumers have been “shying away from flashing their wealth with ostentatious luxury or brands that are too conspicuous in favour of brands that are more about subtle products”, Saunders says. Meanwhile, middle class consumers are continuously seeking value, experts agree. In this sense, there are significant opportunities to speak to the values of Chinese consumers through marketing campaigns.
One of the biggest challenges is around pricing strategies. Some brands may increase local prices in China, depending on whether they make or finish any products in China or the US. “When sentiment is soft, you don’t really want to increase prices because it unnerves consumers and makes them more reluctant to purchase. But unfortunately for some brands, the reality is they might have to,” says Saunders.
Experts predict Chinese tourists will continue travelling to Japan, Southeast Asia and Europe — particularly for ‘Euro summer’. “Clearly, what is sold in Europe to tourists from China and America somehow cannibalises the sales in their domestic market,” says Ortelli.
Saunders stresses that luxury’s performance will not be “uniform”. The trade war between China and the US is far from over, and that uncertainty is likely to continue weighing on shoppers. “China is in the firing line of US tariffs and the whole trade war, so it’s not good for the economy or sentiment,” he says.
Comments, questions or feedback? Email us at feedback@voguebusiness.com.
