China’s wealthy shoppers have a new mentality—and it’s terrible news for luxury brands like LVMH and Kering who bet billions on their loyalty

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China’s wealthy shoppers have a new mentality—and it’s terrible news for luxury brands like LVMH and Kering who bet billions on their loyalty

LVMH,

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, Burberry, and Moncler have been hit hard after pouring money into ******** consumers who have now turned their back on luxury. They are now choosing to spend their money in new ways.

******** consumers were once the crown jewel of customers for luxury brands. But fashion houses like LVMH and Kering have fallen out of favor with the country’s wealthy elite.

Just a few years ago, China was the darling of luxe spending; from 2017 to 2021, the luxury market in the country

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in size. Shoppers were obsessed with conspicuous consumption, and China became the new focus for fashion conglomerates hoping to revel in that growth. But then the COVID-19 pandemic struck, and the country went into lockdown. At the time, the majority of luxury goods purchased by ******** shoppers were picked up in travel hotspots like Paris, London, and New York. When in-person shopping and jet-setting came to a halt, retail giants like LVMH and Kering brought business inside the country. It proved to be a crippling business mistake.

These fashion titans believed the ******** luxury ***** would only propel upward, but tension among consumers was simmering under the surface. Buyers were financially stretched thin and having a change of heart in terms of how they spent their money. The new Louis Vuitton bag or flashy Versace dress was no longer as appealing—they wanted to be more practical and invest for the long run. The shift to a more practical mentality bludgeoned luxury houses.

The big fashion brands’ earnings reports in recent years showed how changing ******** tastes have impacted the industry. The share prices of luxury brands

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in 2024—Kering plummeted 39.4%, Burberry fell 30%, LVMH dropped 13%, and Moncler dipped 7.8% last year alone. LVMH reported its worst company performance since the global financial crisis.

******** consumers have turned their backs on upscale fashion for a few reasons. A large part of this has to do with the country’s economic slowdown following the pandemic; housing and employment slumps tend to reduce flashy purchases, even if the wealthy aren’t hurting. Wealthy ******** consumers also shifted perspective, preferring to invest their money in high-end property or experiences instead of the latest fashions.

Over the past two years, 50 million consumers have

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the luxury market. Brands aren’t keeping their promises with consumers: they’re charging more for the same products.

“Since 2019, there’s been a high price increase across luxury without a corresponding increase in innovation, service, quality, or appeal that a luxury brand should provide,” Marie Driscoll, an equity analyst focused on luxury retail,

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Fortune. “This year, that really hit consumers, and we felt the full impact.”

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******** shoppers caught wind of this during lockdown, and started to jump ship. The country’s economy was in a slump, and middle-class wealth was being bulldozed by a weak property market. With rising luxury prices and nowhere to show off their newest purchases, consumers became disillusioned with buying high-end goods. At the same time, “dupe” culture was sweeping the internet. Thrifty shoppers were copping a fake Prada bag for a fraction of the price, and the stigma of wearing knockoffs dissipated.

There was also one group in particular that felt alienated: young, aspirational workers. They once represented

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of China’s luxury consumers. But work has been hard to come by in recent years. China’s urban

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reached a sky-high 21.3% in June 2023, compared to the national rate of 5.2% at the time.

Because of these factors—aside from the new things they’re purchasing—luxury fashion houses are struggling to recover from their investments in China. LVMH’s organic sales among Asian consumers, excluding Japan,

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14% in the three months to June 2024, after falling 6% in the first quarter that year. Burberry

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several profit warnings over sluggish sales in the region, and the company reported in 2024 that its full-year operating profits dropped 34%. Fashion titan Kering, the parent company of Gucci, Saint Laurent, and Balenciaga, also saw its first quarter revenue decline 11% last year.

“Kering’s performance worsened considerably in the first quarter. While we had anticipated a challenging start to the year, sluggish market conditions, notably in China, and the strategic repositioning of certain of our Houses, starting with Gucci, exacerbated downward pressures on our topline,” the business wrote in a

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.

Wealthy ******** consumers have new priorities. Owning high-end property has solidified as the primary status symbol in China—especially as the housing market struggles.

Buying real estate has long been a promise of success in the country. During the 1990s and 2000s, ******** consumers poured their money into property—so much so that about 70% of the country’s household wealth is stored in their homes. But that bubble burst when the central government reined in developers’ ability to borrow money easily, halting many homes in development. Now many middle-class ******** families are still waiting for the properties they were once promised. Those who are rich

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investment opportunity in being able to afford and purchase luxury homes that are already built.

There’s another thing ******** shoppers are chasing, that can’t be bought: life experiences.

Like many of their international peers, these young consumers grew disillusioned with their luxury purchases; any fulfillment that they once got from splurging on brand-name items started to dissipate. Luxury goods weren’t getting better, and prices were rising. Consumerism was reaching a breaking point. Young ******** people wanted to experience things, rather than own them. They realized owning nice things didn’t make them happier.

“They’re prioritizing either financial investments or prioritizing spending in other categories they deem more important to them,” Nicolas Llinas-Carrizosa, a BCG partner focused on luxury,

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Fortune.

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#Chinas #wealthy #shoppers #mentalityand #terrible #news #luxury #brands #LVMH #Kering #bet #billions #loyalty

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