In Depth: Luxury Brands Cut Price of Exclusivity as Chinese Spending Drops

The Chinese luxury market is undergoing notable transformations amidst economic challenges and shifting consumer behavior. Louis Vuitton recently hosted a private fashion show in Beijing as part of their "Very Important Client" (VIC) events, which are now becoming more inclusive, targeting customers who spend less than the traditional threshold of 500,000 yuan annually [para. 1][para. 2][para. 3]. However, these events also reflect the luxury market's cooling demand as consumers, even in China’s urban centers, are becoming more cautious in their spending [para. 4][para. 5].

In 2024, the Chinese mainland luxury market contracted by up to 20% due to factors such as increased overseas spending by Chinese consumers and conservative wealth management by high-net-worth individuals. Total global luxury spending by Chinese buyers remains 7% lower than the previous year and is 16% below pre-pandemic levels [para. 6][para. 7]. This conservatism is rooted in job insecurity and asset value losses, as middle-class Chinese families choose to save more money, depositing a record 17.99 trillion yuan in 2024 [para. 8][para. 9].

Luxury sub-categories like watches, jewelry, and leather goods are significantly impacted by declining consumer confidence. Watch sales have dropped by up to 33%, while jewelry demand has dipped by 30%. Major luxury brands, including Cartier's parent company Richemont, LVMH, Gucci, and Yves Saint Laurent, have reported double-digit sales declines in China. On the contrary, Hermès and Chanel have shown resilience, bolstered by their exclusivity and high appeal among affluent customers [para. 10][para. 11][para. 12][para. 13].

Despite the downturn, luxury brands remain committed to expanding within China. Brands like Burberry and Dolce & Gabbana are investing in local operations, while others like Coach are entering smaller, emerging cities like Daqing and Baoji to tap into untapped purchasing power. These markets are showing promise as lower-tier cities benefit from population migration and higher disposable income [para. 14][para. 15][para. 16].

To adapt, brands are incorporating innovative strategies such as hybrid experiences combining fashion and lifestyle, exemplified by Coach's coffee shops and apartments and Prada's new restaurant in Shanghai. Personalized services and luxury experiences, such as private shopping or events at unique venues, are also being emphasized to meet the preferences of high-net-worth clients [para. 17][para. 18][para. 19].

Digital engagement remains a challenge for luxury brands aiming to connect with affluent consumers online. Platforms like WeChat Mini Programs have demonstrated inconsistent user activity, highlighting the difficulty of maintaining ongoing digital connections with high-net-worth customers. While brands recognize the importance of online channels, many, such as Hermès, still prioritize offline shopping experiences to build lasting customer relationships [para. 20][para. 21][para. 22].

Overall, the Chinese luxury market is at a crossroads, driven by changes in consumer spending behaviors, economic uncertainties, and evolving strategies aimed at long-term growth. While challenges persist, experts suggest that the current decline should be viewed in the context of a high sales base in 2023, offering hope for a clearer trajectory in the coming years [para. 23][para. 24].