As Burberry, LVMH, Kering and others report flagging sales, what does China’s luxury slowdown mean for British brands?
For several years now, China has been seen as the main driver of growth for the luxury goods industry. But recent sales figures from both luxury groups and independent brands indicate that Chinese shoppers are reining in their spending amid economic uncertainty.
Two of the world’s largest luxury groups, Kering and LVMH, reported falling revenue in the first half of 2024, with LVMH’s sales in the Asian market falling by 14% in Q2 2024. Earlier in July 2024, Burberry ousted CEO Jonathan Akeroyd after its financial figures reported sales in China falling 20%. Richemont, Hugo Boss and Swatch Group also all reported falling sales.
These troubles in the luxury market come as the latest economic data showed China’s economy growing 4.7% in Q2 2024, down from 5.3% in Q1 2024 to the lowest since Q1 2023. This faltering has been partly attributed to the country’s prolonged property crisis, which has certainly spooked the kind of aspirational buyers that have traditionally driven luxury sales in China.
Nevertheless, things aren’t all doom and gloom. Hermès bucked the trend, reporting a 7% uptick in sales revenue for Asia (excluding Japan), and while it saw a decline in foot traffic in its stores in China, sales there held relatively steady compared with last year.
Hermès’ results show that the top, top end of the luxury market is holding strong, as recession resistant ultra-high-net-worth individuals continue to make major purchases. The ‘quieter’ branding of Hermès and other ultra-luxury brands appeals to UHNW Chinese consumers keen to avoid ostentatious displays of wealth in troubled economic times. Earlier in 2024, Chinese censors shut down the Douyin accounts of some Chinese influencers known for flaunting their luxurious lifestyles.
Another area that shows some light at the end of the tunnel for luxury brands in China is outbound travel. LVMH said that poor sales in China were ironically being balanced by “substantial growth” in Japan driven by Chinese tourists, and both LVMH and Kering reported high numbers of Chinese tourists visiting their stores in Europe.
Going forward, luxury brands in China may have to choose between keeping prices high to maintain an aura of exclusivity that appeals to UHNW individuals and reducing prices to recapture the attention of aspirational consumers. Burberry has tried the latter, offering average reductions of 50% across all distribution channels in China so far in 2024 according to data intelligence platform Luxurynsight – although the brand’s latest sales figures suggest this strategy might not be paying off.
The savviest brands will look to local Chinese brands and up-and-coming premium brands for inspiration on how to stay top of mind among a contracting consumer base and build a presence among Gen Z consumers exploring the luxury market for the first time. Strategies like localisation, cross-industry collaborations with local brands and building relationships with niche interest groups will be important going forward.
