Where have luxury consumers gone? It’s been a bad year for big brands

LONDON — The Chinese call it tangping, or “lying down,” a pose that has crushed luxury goods sales and profit growth since the country finally lifted pandemic restrictions last year.

This slang term refers to a temporary loss of ambition, drive, and desire to engage, create, and consume. Rather, at a time when China is facing so many economic challenges, those who are “lying down” are pausing, rethinking their priorities, and seeking a simpler life.

Tangping may be a health benefit for some people, but it has been disastrous for the luxury goods industry. The industry has long viewed China as one of its giant cash-producing machines, accounting for a large portion of its annual revenue from both domestic and international tourist spending.

The past 12 months have been tough for big brands and luxury groups, driven by soaring flight prices in China and for luxury goods in general, but the outlook for the first half of 2025 is not much better.

Richemont Chairman Johann Rupert is taking a pragmatic approach to weak demand in China, which is hurting sales and profits for his brands.

Rupert believes that “uncertainty is the norm and it will take longer for China’s demand weakness to recover.” Worryingly, he and his Richemont colleagues call China’s economic downturn a “medium-term or long-term phenomenon.”

Barclays feels the same way. Analysts said they expect mainland China to remain “under pressure” due to a weak property market, high youth unemployment and weak consumer confidence levels.

China is introducing new economic stimulus, but warns it will be moderate rather than bold. The country is also preparing for the possibility of imposing penalties on exports to the United States if Donald Trump takes office in January. Nevertheless, Chinese President Xi Jinping this week reaffirmed that his country will meet its 5% growth target this year and remains a driving force behind global economic growth.

Others see it differently. As a result of the pressure, Barclays forecasts “slight positive growth” in demand from Chinese customers in 2025.

Bernstein is similarly cautious.

The bank said China’s spending “deteriorated decisively” in the third quarter of 2024, adding: “It is difficult to say whether this will be temporary.” Expectations for Chinese spending growth in 2025 are currently in the low single digits.

Few luxury brands and the luxury goods category have been able to escape the consumption slump, which is also a result of post-pandemic inflationary pressures and rising global interest rates.

Luxury watches have been particularly hard hit, with Swiss exports plummeting in September by 12.4% in value and 20.8% in volume, according to the Swiss Watch Industry Federation.

The industry group said September’s decline was the “most significant this year” so far, totaling just over CHF2 billion.

FHS had already expressed a negative outlook for the rest of the year.

In the first nine months of 2024, exports from the Swiss watchmaking sector fell by 2.7%. In the same month, exports to China and Hong Kong decreased by 49.7% and 34.6% from the previous year.

In the first half of Richemont’s fiscal year, sales at its watch division, which includes brands such as IWC, Panerai and Vacheron Constantin, fell 17% to 1.7 billion euros.

Richemont said the decline in demand for watches “highlights the need for discipline and vigilance against overproduction and highlights the importance of adapting to changing market conditions.”

Overall, the contraction in Richemont’s first half was smaller, mainly due to the group’s largest division, jewellery, where sales rose 2% to 7.1 billion euros. The sector benefited from strong demand around the world, excluding China.

Kering is also a group that felt the influence of Tan Ping. The company has already issued a number of profit warnings this year, and recently expanded on various cost-cutting measures to counter an expected 50% decline in operating profit for fiscal 2024.

The French luxury conglomerate posted a tough third quarter that saw star brand Gucci again beat expectations amid sharp economic slowdowns in China and Japan. As the company attempts to rebuild, it is undergoing layoffs, store closures, and contract renegotiations.

François-Henri Pinault, Chairman and CEO of Kering, said: “Our absolute priority is to achieve healthy and sustainable growth, while further strengthening cost control and investment selectivity. The goal is to create the conditions for a return to that.”

The group, which also owns brands such as Saint Laurent, Bottega Veneta and Boucheron, reported a 15% drop in sales to 3.79 billion euros in the three months to September 30, missing analysts’ expectations. This was a 16% decrease on a comparative basis. .

Kering’s Chinese revenue fell 35% at group level in the third quarter, and the company said it was too early to know when the government’s stimulus measures would bear fruit.

By comparison, organic sales for LVMH Moët Hennessy Louis Vuitton’s main fashion and leather goods division were down 5% year over year in the third quarter.

The world’s largest luxury goods group saw overall sales fall 4.4% in the third quarter, below market expectations, due to slowing growth in Japan and a “significant decline in sales of clothing and accessories to Chinese consumers.” It got worse.

Sales across the main fashion and leather products sector were down 5% in real terms compared to the same period last year, well below Visible Alpha’s consensus forecast for a 1% increase.

The industry leaders’ struggles illustrate the depth of the crisis in Chinese consumer confidence.

Spending on fashion and leather goods rose to mid-to-high single digits in the first half of the year, but fell to mid-single digits in the third quarter, the company said.

Burberry has also been hit hard by China’s economic slowdown, with 40% of its sales coming from overseas in 2020.

In the first half, same-store sales across the Asia-Pacific region decreased by 25%, and same-store sales in mainland China decreased by 24%.

In the first six months, overall same-store sales were down 20%, with double-digit declines in all regions. The company reported an adjusted operating loss of £41m, compared to a profit of £223m in the same period last year.

The company is undergoing a transformation under new CEO Joshua Shulman, seeking to attract Burberry’s traditional core customers with a focus on iconic products such as checked scarves and trenches.

Mr Schulman said Burberry was “working urgently to correct and stabilize its business and return to sustainable and profitable growth”. He said he had no doubt that the company’s “best days are yet to come.”

Mr. Schulman is also considering adjusting Burberry’s pricing by expanding the company’s entry-price offer and lowering prices in categories where the brand is less prestigious, such as leather handbags.

Burberry is not the only company to take a fresh look at soaring prices, which are a major factor in the economic downturn.

The nose-bleeding price surprised aspiring customers and left even the wealthiest customers wondering whether they were still in the mood to pay £510 for a cotton jersey short-sleeved T-shirt from brands such as The Row. .

Luca Solca, a luxury goods analyst at Bernstein, calculated the spectacular inflation in recent years.

Bernstein said that between 2020 and 2023, when post-pandemic overspending saw consumers gobbling up luxury goods, prices fell 66% at Dior, 59% at Chanel, 54% at Moncler and 43% at Prada. , Louis Vuitton rose 31%. , 25% for Saint Laurent, 21% for Gucci, 20% for Hermès and 18% for Burberry.

HSBC analyst Irwin Lambourg calls this “greedflation,” a major headwind for the sector that cannot be resolved quickly.

“With very few exceptions, most brands are indeed raising prices too quickly,” he argued in a recent report. “Many will benefit from rebuilding the foothold for aspiring consumers to come back after the recent price cuts.”