French luxury group Kering closed two Gucci stores in Shanghai last month. These closures followed at least eight in the fourth quarter last year, and two in the last quarter, followed by brands including Louis Vuitton, Chanel, Tiffany & Company and Bvlgari.
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Luxury retailers are speeding up retreats from China and closing their stores in luxury shopping malls in major cities.
French luxury group Kering closed two Gucci stores in Shanghai last month. One is located at Lel Department Store near Jingyan Temple, and the other is at New World Daimal on Nanjing Road. Prada also ended its two-year existence at Hong Kyao International Airport.
These closures were reported following at least eight people in the fourth quarter of last year and two quarters of brands like Louis Vuitton, Chanel, Tiffany & Company and Bvlgari in the last quarter, according to industry tracker Linkshop.com.
Low Consumer Expenditure
But why is this happening?
“Most brands have seen a sharp decline in sales in mainland China, influenced by Chinese citizens who shop more overseas, as well as (depressed) consumer sentiment at home,” SCMP quoted Jelena Sokorova, senior equity analyst at Morningstar. Before the pandemic, Chinese consumers split their luxury purchases in around 60-40 between domestic and international markets. That ratio has since been reversed, she said.
The slump has urged Beijing to make boosting consumption a top priority this year at the National People’s Assembly. The government doubled the state’s subsidies for the purchase of consumer goods to 300 billion yuan ($41.4 billion) to revive spending.
Even with these measures, Bain & Co in January. According to a report by China’s luxury sales fell 20% from an estimated 18% last year. Jewelry and watches were hit hardest the hardest as they shifted their focus to assets that consumers deem better to maintain value.
Another blow to real estate
The luxury retail recession also adds pressure on China’s commercial real estate sector, which is struggling with rising vacancy rates and excessive supply.
Retail vacancy rates in 11 major Chinese cities are projected to rise to 10.5% this year from 10.4% in 2024, according to Real Estate Consultant Suvils. During the pandemic, rates hit a high of 11.4% in 2022, the worst since Savills began tracking data in 2012.
Rental revenue fell by 4% last year, the luxury mall owned by Hong Kong-listed Hanglangu Group, is engaged in aggressive discounts to attract customers. The company’s Wuhan shopping centre occupancy fell to 85% from 86% in 2022, according to its annual report.
Despite the rise in vacancy, rents have not yet dropped significantly, putting even more pressure on luxury retailers, Sokolova said.
