BEIJING — The global luxury market, which has experienced unprecedented growth over the past two decades, is facing a significant downturn, with China's economic slowdown being a major contributing factor. The country's luxury market, once a driving force behind the industry's expansion, is now experiencing a decline, with sales plummeting and luxury brands shedding hundreds of billions of dollars in market value.
According to analysts, the Chinese market's growth engine has stalled, with the pandemic-induced shift in consumer behavior and the country's economic woes being major reasons for the decline. In 2019, about two-thirds of all luxury goods bought by Chinese shoppers were purchased outside of China, but when COVID-19 closed borders, that spending shifted inside the country, exposing the luxury industry to new challenges.
The economic slowdown, triggered by a property market slump, has led to a decline in Chinese consumers' purchasing power, with many opting out of the luxury market or being forced out due to financial constraints. The high youth unemployment rates in China have also posed a significant obstacle, as aspirational young professionals have been a key source of growth for luxury brands.
As a result, luxury brands such as LVMH, Kering, and Moncler have seen their market value decline significantly, with LVMH recording its worst annual performance since the global financial crisis. The shift in consumer behavior, with many young Chinese opting for experiences over extravagance, has also led to a surge in sales for companies like Lululemon and Arc'teryx, which offer high-quality, affordable alternatives to luxury products.
The trend of purchasing "dupes," or high-quality knockoffs, has also gained traction in China, with many consumers opting for cheaper alternatives to luxury products. This shift in consumer behavior, combined with the Chinese government's emphasis on "common prosperity," has led luxury brands to reassess their strategies, with many focusing on targeting their most affluent clients.
As the Chinese luxury market continues to decline, companies such as LVMH are turning their attention to other regions, including India, the Middle East, and Southeast Asia, in an effort to make up for the shortfall. With sales in China expected to remain depressed into 2025, the luxury industry is bracing itself for a new normal, one that is marked by slower growth and increased competition.
