In a sluggish economy, luxury appeals to Chinese customers



Published on

May 3, 2024

Sipping champagne and nibbling ravioli, Shanghai’s wealthy elite recently enjoyed the post-Louis Vuitton fashion show party, as the luxury sector targets Chinese customers to overcome the economic slowdown.

Spectators take photos of the Louis Vuitton “Voyager” fashion show in Shanghai, April 18, 2024. – Hector RETAMAL / AFP

China is the country that spends the most on luxury goods, accounting for half of global sales. But consumption in the world’s second largest economy has struggled to restart since the Covid years, causing concern in the sector.

Shares of Kering, Gucci’s parent company, fell in April after announcing an 11% drop in sales in the first quarter, attributed in particular to difficult market conditions in China.

“Gucci will not be alone in this case, other brands are also suffering from (the drop) in domestic demand in China,” explains Fflur Roberts, in charge of the luxury sector at Euromonitor International, a specialist in market research.

Brands like Louis Vuitton, well established in China, have organized special events in recent months targeting its VICs, in other words “Very Important Customers”.

Its show in Shanghai last month, called “Voyager”, was presented by the brand as the “new chapter in the long and strong relationship” which unites it with China.

Its flagship pieces, colorful dresses illustrated with animal drawings, are the result of a collaboration with contemporary Chinese artist Sun Yitian, an opportunity for the French brand to salute the “incredible artistic vitality” of Chinese youth .

In the front row of the parade, Hollywood stars like Cate Blanchett and Jennifer Connelly, but also Chinese ambassadors of the brand like the rapper Jackson Wang and the singer and actress Liu Yifei.

“Travel more”

LVMH, parent company of Louis Vuitton, saw its global sales decline by 2% in the first quarter, the group citing the context in China.

Spectators at the Louis Vuitton “Voyager” fashion show in Shanghai, April 18, 2024. – Hector RETAMAL / AFP

“In the first quarter of last year, the Chinese market had started to open up” after the pandemic. The Chinese “had an extremely tough year in 2022 (…), there was a lot of euphoria,” financial director Jean-Jacques Guiony explained to journalists.

The blow has since subsided with growth of only “around 10%” in its sales in China in the first quarter.

If Prada and Hermès exceeded analysts’ expectations in the first quarter, with an 18% and 17% increase in sales respectively at constant exchange rates, overall the market is slowing down.

The consulting firm Bain & Company forecasts single-digit growth in the luxury market in China this year, compared to 12% in 2023.

“The economic slowdown is having an impact on the confidence of Chinese luxury consumers,” says Lisa Nan, Jing Daily correspondent specializing in this sector.

“We are facing consumers who are increasingly cautious and attentive to the value of goods, who will also check the value of a bag on the second-hand market before purchasing.”

After the Covid years, we are also observing a change in consumer habits. In Shanghai, a passerby who only gives her last name — Ms. Liu — says she sometimes buys designer items, but would never queue to buy the latest fashionable bag.

“I prefer to travel a little more,” she says. “I’m not obsessed with brand names.”

“We had nothing”

This trend is reflected in the recent report from the research company Hurun on the preferences of the richest. “There is a real shift towards luxury experiences, rather than luxury goods,” explains Lisa Nan.

Louis Vuitton “Voyager” fashion show in Shanghai, April 18, 2024. – Hector RETAMAL / AFP

During the pandemic, the absence of Chinese tourists with high purchasing power had dealt a heavy blow to the European luxury sector.
Part of this spending has shifted to China, and now brands are organizing events there and creating goods specially designed for the Asian giant, their first market.

The outlook for the sector remains “complicated”, warns Fflur Roberts of Euromonitor. “That said, there are still more than 2.5 million people in China with a net personal wealth of more than $1 million,” she notes.

On a sunny day in the center of Shanghai, we still come across passers-by carrying a luxury bag to go shopping.

“Some people say that if you buy them in a classic style, then their value can appreciate and it can be an investment,” says Winnie, a 28-year-old media worker carrying a Dior bag.

“But for me, it’s not an investment. As long as I like it, I’m fine with it.”

For Jennifer Sheng, a passerby in her sixties, “in China, (European) brands are still important” and many Chinese like to show off that they own luxury items.

“Twenty or 30 years ago, we had nothing,” she remembers. Now, “we want to have these things.”

All rights of reproduction and representation reserved.
© 2024 Agence France-Presse
All information reproduced in this section (or on this page as the case may be) is protected by intellectual property rights held by AFP. Consequently, none of this information may be reproduced, modified, rebroadcast, translated, commercially exploited or reused in any way without the prior written consent of AFP. AFP cannot be held responsible for delays, errors, omissions which cannot be excluded, nor for the consequences of actions or transactions carried out on the basis of this information.



PREV Fed officials remained confident in disinflation at latest meeting, despite doubts, minutes show
NEXT Amal Clooney takes on war crimes