LVMH, Kering, Burberry and Moncler were hit hard after pouring money on Chinese consumers who are turning their backs on luxury. They are now choosing to spend their money in a new way.
Chinese consumers were once the crown jewels of luxury brand customers. However, fashion houses like LVMH and Kering have become favorable to the country’s wealthy elite.
Just a few years ago, China was a beloved of luxury spending. From 2017 to 2021, the domestic luxury market tripled. Shoppers are obsessed with prominent consumption, and China has become a new focus for fashion conglomerates, hoping to enjoy its growth. However, later the Covid-19 pandemic hit and the country was locked down. At the time, most of the luxury items purchased by Chinese shoppers were greeted at travel hotspots such as Paris, London and New York. When face-to-face shopping and jet setting ceased, retail giants like LVMH and Kering brought business in the country. It proved to be a lame business mistake.
These fashion titans believed that China’s gorgeous boom would only be promoted upwards, but tensions among consumers simmered beneath the surface. Buyers are growing financially thin, and there has been a change in their minds in terms of how they spend their money. The new Louis Vuitton bags and flashy Versace dresses were no longer attractive. They wanted to invest in more practical and long term. The transition to a more practical mentality will bl hit a gorgeous home.
Revenue reports for big fashion brands in recent years show how changes in China’s preferences have affected the industry. Stock prices of luxury brands that tanked in 2024 plummeted 39.4%, Burberry fell 30%, LVMH fell 13%, and Moncler fell 7.8% last year alone. LVMH reported the worst company performance since the global financial crisis.
Chinese consumers have turned their backs on luxury fashion for several reasons. Much of this has been linked to the country’s economic slowdown after the pandemic. The downturn in housing and employment tends to reduce flashy purchases, even if the wealthy are not hurt. Wealthy Chinese consumers also changed their perspective and preferred to invest their money in luxury properties and experiences instead of modern fashion.
Over the past two years, 50 million consumers have fled the luxury market. Brands don’t keep their promises to consumers. It charges more of the same product.
“Since 2019, there have been high prices rises with luxury without dealing with the innovation, service, quality or appeal that luxury brands should offer,” said Equity Anna, focusing on luxury retail. List’s Marie Driscoll told Fortune. “This year, it really hit consumers and we felt a complete impact.”
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Chinese shoppers began to catch the wind of this during the lockdown and jumped over the ship. The country’s economy was sluggish and middle-class wealth was bulldozed by weak property markets. With luxury prices rising and nowhere to show off their latest purchases, consumers have become disillusioned with buying high-end items. At the same time, the “Dupée” culture was wiping out the internet. Shoppers about rif were copying fake Prada bags for just a small portion of the price. And the stigma of wearing imitations has been dissipated.
There was one group that felt particularly alienated. A young, motivated worker. They once represented more than half of China’s gorgeous consumers. However, in recent years, it has been difficult to get work. The unemployment rate in Chinese cities reached an air altitude of 21.3% in June 2023, compared to the national rate of 5.2% at the time.
These factors are azid from the new ones they are buying, so Lakshley fashion houses are struggling to recover from their investment in China. Organic sales of LVMH among Asian consumers except Japan fell 6% in the first quarter of that year, then fell 14% in the three months to June 2024. Burberry has issued several profit warnings about a sluggish sales in the region, with the company reporting a 34% decline in full year operating profit in 2024. Fashion Titan Kering, the parent company of Gucci, St. Laurent and Balenciaga, also saw revenues decline by 11% in the first quarter last year.
“In the first quarter, Kering’s performance has deteriorated significantly. We have anticipated a challenging start to the year, particularly in China, and the strategic position of a particular home that begins with Gucci. But it exacerbated downward pressure on our top line,” Business wrote in a press release.
Wealthy Chinese consumers have new priorities. Owning high-end property has solidified as China’s main status symbol, especially as the housing market struggles.
Buying real estate has long been a promise of success in the country. During the 1990s and 2000s, Chinese consumers poured money into their assets. Therefore, approximately 70% of the wealth of a country’s household is stored in their homes. But that bubble burst when the central government restrained the developer’s ability to borrow money easily and stopped many homes under development. Today, many Chinese Chinese families are still waiting for their once-promised property. Rich people see investment opportunities in which they can afford and can buy luxury homes already built.
There’s another thing Chinese shoppers are chasing.
Like many of their international peers, these young consumers were disillusioned with luxury purchases. The success they once got from scattering branded items began to dissipate. Luxury items were not getting better and prices were rising. Consumers were reaching their breaking point. Young Chinese people wanted to experience things rather than own them. They realized that owning nice things doesn’t make them happy.
“They prioritize financial investments or prioritize spending in other categories that are more important to them,” says Nicholas Llinas-Carrizosa, a luxury-focused BCG partner, to Fortune. I spoke.
This story was originally featured on Fortune.com.
