Luxury purchasing power in the Chinese market is on the decline. Economic downturn, political tension, and changing consumption habits have led Chinese consumers to gradually move away from luxury brands such as LV and Gucci handbags, resulting in a double-digit decrease in sales for LVMH and Kering Group in Asia.
China’s economy has been in a prolonged slump since the outbreak of the pandemic, causing consumers to tighten their wallets. Meanwhile, the anti-corruption campaign for “common prosperity” initiated by the Chinese Communist Party has made flaunting wealth a potentially risky behavior. With difficulties in employment, more and more Chinese young people are choosing to spend their money on travel and experiences, reducing their consumption of luxury goods.
Consulting firm Bain estimates that the luxury goods market in China shrank by about one-fifth last year compared to the previous year. Industry leader LVMH stated that Asia (excluding Japan) sales in the fourth quarter saw an 11% year-on-year decline, mainly driven by sales in China. Kering Group, the parent company of Gucci, experienced a 24% year-on-year drop in sales centered on the Chinese market.
In China, some luxury brands are closing stores or taking time to open new ones. Gucci has closed at least two stores in regional cities.
According to Bloomberg, in June 2023, during his visit to China, LVMH CEO Bernard Arnault toured a five-story building in Beijing, where the luxury brand Louis Vuitton (LV) planned to open a flagship store in the first half of 2024. Currently, the future flagship store of Louis Vuitton in Beijing is located within a shopping center operated by Swire Properties Limited. Both neighboring buildings are leased to LVMH’s Dior and Tiffany, but their opening schedules are unclear.
The Wall Street Journal reported on February 18th that Xie Weina, who used to buy luxury handbags every two months in recent years, did not purchase any bags last year and instead opted for a gym membership and Pilates classes.
Yang Liu, a 32-year-old healthcare professional, said she had purchased Gucci’s Dionysus and Bulgari’s Serpenti bags before, but lost interest in luxury goods during the pandemic and income reduction. She now uses a canvas tote bag.
“In recent years, I have become more rational,” she told the Wall Street Journal. “It’s mainly about value for money.”
Luxury store staff members reported a decrease in foot traffic. Xie Weina said that some luxury brand store associates who previously refused customer inquiries are now reaching out to them through messaging apps to promote the latest offers.
Kering Group’s stock price has fallen by about one-third over the past year. LVMH’s stock price dropped by more than one-third after hitting a high point last year, only recently showing a rebound.
Compared to China, demand for luxury goods in other parts of the world remains mostly stable. Last year, LVMH saw a slight increase in sales in the United States. Bain & Company stated that in 2020, China represented one-fifth of the global personal luxury goods market, but this proportion dropped to 12% last year.
Luxury brands are not the only Western companies suffering losses in the Chinese market recently, as other impacted industries include foreign automobile manufacturers, coffee chains, and technology companies.