The lacklustre Chinese economy is causing European luxury brands to rethink future sales strategies amid a collapse in domestic demand for luxury goods.
Following years of prosperous growth, China’s luxury market is now expected to decline as much as 15% this year, according to consultancy Digital Luxury Group.
China’s struggling economy has mainly been driven by a nationwide housing crisis. While the decline for luxury goods is partly cyclical, signs of changing consumer behaviour have emerged.
In part, President Xi Jinping’s unwavering anti-corruption stance among government officials and high-profile take-downs in the finance sector, has meant personal displays of wealth as status symbols are no longer widely coveted. Gary Ng, senior economist at Natixis SA said: “For many, showing off their wealth may not be wise at this juncture.”
Elsewhere, the younger generations of Chinese consumers are now looking to travel and other experiences instead of splashing money on Louis Vuitton handbags and Rolex watches.
Once seen as the booming economy for luxury brands, between 2011 and 2021 China’s luxury goods market soared more than four times to 471 billion yuan (A$100 billion), according to consultancy firm Bain & Co.
Despite much anticipation, the Chinese post-COVID rebound never played out and LVMH CFO Jean-Jacques Guiony said during the company’s earnings call last month: “Consumer confidence in mainland China today is back in line with the all-time low reached during COVID.”
Could this signal an end to the glory days of luxury retail trade in China?