The year 2024 marked a significant turning point for China’s luxury market. As we navigated economic challenges, evolving consumer preferences, and increasing arbitrage dynamics, it became clear that structural vulnerabilities were surfacing in a sector once viewed as the powerhouse for global luxury brands. The slowdown was pronounced, driven by an underperforming economy, a lingering real estate crisis, and a generation of young consumers who are becoming more cautious with their spending.
China’s economic growth took a step back to 4.5 percent this year, dipping from 5.2 percent in 2023, a change that reflects a climate of broader macroeconomic unpredictability. The real estate sector, essential to China’s economy and responsible for about 30 percent of GDP, experienced a 15 percent decline in investment. This downturn translated into a negative wealth effect, which in turn limited discretionary income for many affluent households and triggered noticeable changes in their purchasing habits.
According to Bain & Altagamma’s Luxury Goods Worldwide Market Study, sales of personal luxury goods within mainland China dipped by 1 to 3 percent during the first quarter of the year. On top of this, analysts at HSBC lowered their luxury market growth projections, forecasting an increase of just 2.8 percent for 2024, a stark revision from their earlier estimate of 5.5 percent.
In response to increased price sensitivity among Chinese consumers, we’ve seen a notable revival in outbound shopping. With favorable exchange rates and tax-exempt purchasing options in places like Japan and Hainan, luxury goods have become considerably more affordable. For instance, the weakness of the yen in Japan has effectively slashed the price of luxury goods by 30 to 40 percent, making it a magnet for Chinese shoppers.
On the other hand, Hainan’s duty-free market thrived with a remarkable 15 percent year-over-year sales growth, thanks to its appealing pricing and easy access. Notably, around 52 percent of wealthy Chinese consumers opted for overseas luxury purchases during the first half of 2024, an increase of 16 percent compared to the prior year, even while outbound travel was still on the mend from pandemic-induced lows.
The luxury sector’s pricing strategies have added further strain. Ongoing price hikes ranging from 15 to 50 percent since 2021 have alienated many aspiring buyers. Outcry over price disparities between domestic and international markets gained traction on social media, compelling a greater number of Chinese consumers to pursue their purchases abroad.
Luxury price hikes in China: A strategic decision or a risky move?
This year, luxury brands have rolled out notable price increases in China and beyond, all in an attempt to tackle inflation, uphold brand prestige, and optimize profitability. But the pressing question remains: Will consumer demand hold steady?
Compounding this, structural economic hurdles have hit China’s youth particularly hard, a demographic traditionally pivotal in driving luxury spending. With youth unemployment soaring to over 20 percent in 2024—a record high—surveys indicate a corresponding drop in discretionary spending among those aged 16 to 24. This younger generation is increasingly drawn to experiences such as travel, entertainment, and wellness rather than material possessions. Despite this shift, secondhand luxury platforms have gained traction, enjoying a revenue boost of around 20 percent this year as younger consumers pursued more affordable and sustainable alternatives.
Western luxury brands are grappling with mounting obstacles in light of these trends. A consumer survey from TD Securities highlighted that one in four Chinese shoppers found Western brands less appealing in 2024, illustrating the growing presence of domestic players in the market.
For instance, Mao Geping Cosmetics reached a market valuation exceeding USD 3 billion following an 87 percent surge in share price during its IPO this year. This dramatic increase signals a strong demand for culturally relevant luxury options. In contrast, established luxury giants like LVMH and Richemont have reported decreased sales in the region, with LVMH announcing a 16 percent decline in third-quarter revenue in Asia (excluding Japan) compared to 2023.
The evolving preferences of China’s younger generations are reshaping the luxury landscape fundamentally. Millennials and Gen Z are leaning towards brands that embody cultural significance, authenticity, and sustainability, increasingly shunning ostentatious displays of wealth. This transformation in consumer behavior aligns with Xi Jinping’s ongoing campaign against “luxury shame,” a movement aimed at curbing extravagant consumption and reducing the visibility of wealth influencers on social media.
The future of China’s luxury market rests on uncertain ground. Bain’s projections hint at continued sluggishness through 2024, with persistent structural issues such as wavering consumer confidence, a beleaguered middle class, and rising economic disparity hindering growth. Brands that aspire to bounce back will need to focus on localized offerings, maintain pricing stability, and foster deeper connections with culturally aware, value-driven consumers.
As we look ahead to the conclusion of 2024, one key lesson for global luxury brands becomes clear: Continuous growth can no longer be taken for granted. The capacity to adapt will ultimately dictate success in the face of China’s ever-evolving market dynamics.