Economy, slowdown of the Chinese economy and cool fashion
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The Chinese economic crisis is deeply affecting the luxury market, leading to a significant drop in sales and a shift in consumer preferences. New generations are moving away from traditional brands, seeking more accessible and sustainable products. European brands must quickly adapt to this new reality to remain competitive.
The Chinese Economic Crisis
The crisis is serious! For years, the Dragon country has been the fortune and success of European luxury brands. By the end of October, the central government will publish the official PMI results for the Chinese manufacturing sector, which will provide the first documentary evidence for assessing the effectiveness of the stimulus measures implemented by the Chinese authorities in the last month. At present, it is clear that China has entered a phase of what is referred to as "downsizing," with serious medium-term consequences for most Western fashion producers. This comes after Western producers have thrived for decades selling their goods in China. It is enough to recall how Chinese consumers have been the driving force behind the success of European luxury brands, becoming a significant business area capable of influencing the strategies of major companies in the sector with their purchases.
Consequences for Luxury Brands
Certainly, in this historical and economic moment, the negative effects for luxury groups are also heightened by the decoupling between various Western economies and the Chinese economy. For instance, the world's largest luxury group, LVMH, which has 75 brands and a market capitalization of 300 billion, recorded a 5% decline in sales in the third quarter of 2024. Prospectively, in 2021, Asia (excluding sales in Japan) accounted for 35% of revenue, while in the first two quarters of 2024, it only accounted for 6%. Conversely, for competitor KERING, in 2021, China accounted for 38%, while in the first six months of 2024, this share dropped to 32%. The problem is evident to all, especially for Made in Italy. However, there also needs to be a bit of self-reflection on the European side, as during COVID, with Chinese consumers confined at home and experiencing a genuine shopping frenzy, they were purchasing luxury goods online in bulk.
Changing Consumer Behavior
Between 2019 and 2021, the volume of purchases in the luxury market in China more than doubled. But it is precisely in this phase that, despite numerous excuses due to difficulties for producers in supply chains, prices increased by over 50%, a clear case of exploiting the situation. However, times are changing. New generations of Chinese have opened their eyes and said enough. Today, the most desired products are being purchased at lower prices compared to the domestic market, either directly in Japan or on Chinese e-commerce platforms with discounts of up to 40%. The search for lower-priced goods, even in China, is not just a cultural phenomenon but is also driven by the sharp economic slowdown and the real estate crisis affecting the middle-wealth social classes.
A New Future for European Brands
Today, China is also facing a new social problem: youth unemployment, which further emphasizes that the new generations are significantly less interested in luxury brands than their parents and are increasingly oriented toward niche, eco-friendly products that are cheaper and carry cultural significance, as well as items from second-hand markets. The sentiments of young Chinese echo the government’s loud declaration of “luxury-shame,” a genuine war on ostentation that prioritizes socially egalitarian purchases that do not overly highlight income and social differences. In short, a new shadow of communist ideals is once again sailing through the country, so much so that, for example, authorities have recently banned public employees from using Apple phones. One thing is certain: the path of luxury in China is marked, and it will no longer be as it once was. Major European brands will need to quickly sit down at their chic desks, take a deep breath, and contemplate new strategies without looking back with regret at the glories of the past. The world has changed, and it’s uncertain how much more it will change in the near future. Today, a tangible example of this is the Chinese market, an increasingly unwelcoming environment for high fashion, becoming more and more foreign-oriented, nationally attentive, and competitive.
Fabio Accinelli
The Chinese Economic Crisis
The crisis is serious! For years, the Dragon country has been the fortune and success of European luxury brands. By the end of October, the central government will publish the official PMI results for the Chinese manufacturing sector, which will provide the first documentary evidence for assessing the effectiveness of the stimulus measures implemented by the Chinese authorities in the last month. At present, it is clear that China has entered a phase of what is referred to as "downsizing," with serious medium-term consequences for most Western fashion producers. This comes after Western producers have thrived for decades selling their goods in China. It is enough to recall how Chinese consumers have been the driving force behind the success of European luxury brands, becoming a significant business area capable of influencing the strategies of major companies in the sector with their purchases.
Consequences for Luxury Brands
Certainly, in this historical and economic moment, the negative effects for luxury groups are also heightened by the decoupling between various Western economies and the Chinese economy. For instance, the world's largest luxury group, LVMH, which has 75 brands and a market capitalization of 300 billion, recorded a 5% decline in sales in the third quarter of 2024. Prospectively, in 2021, Asia (excluding sales in Japan) accounted for 35% of revenue, while in the first two quarters of 2024, it only accounted for 6%. Conversely, for competitor KERING, in 2021, China accounted for 38%, while in the first six months of 2024, this share dropped to 32%. The problem is evident to all, especially for Made in Italy. However, there also needs to be a bit of self-reflection on the European side, as during COVID, with Chinese consumers confined at home and experiencing a genuine shopping frenzy, they were purchasing luxury goods online in bulk.
Changing Consumer Behavior
Between 2019 and 2021, the volume of purchases in the luxury market in China more than doubled. But it is precisely in this phase that, despite numerous excuses due to difficulties for producers in supply chains, prices increased by over 50%, a clear case of exploiting the situation. However, times are changing. New generations of Chinese have opened their eyes and said enough. Today, the most desired products are being purchased at lower prices compared to the domestic market, either directly in Japan or on Chinese e-commerce platforms with discounts of up to 40%. The search for lower-priced goods, even in China, is not just a cultural phenomenon but is also driven by the sharp economic slowdown and the real estate crisis affecting the middle-wealth social classes.
A New Future for European Brands
Today, China is also facing a new social problem: youth unemployment, which further emphasizes that the new generations are significantly less interested in luxury brands than their parents and are increasingly oriented toward niche, eco-friendly products that are cheaper and carry cultural significance, as well as items from second-hand markets. The sentiments of young Chinese echo the government’s loud declaration of “luxury-shame,” a genuine war on ostentation that prioritizes socially egalitarian purchases that do not overly highlight income and social differences. In short, a new shadow of communist ideals is once again sailing through the country, so much so that, for example, authorities have recently banned public employees from using Apple phones. One thing is certain: the path of luxury in China is marked, and it will no longer be as it once was. Major European brands will need to quickly sit down at their chic desks, take a deep breath, and contemplate new strategies without looking back with regret at the glories of the past. The world has changed, and it’s uncertain how much more it will change in the near future. Today, a tangible example of this is the Chinese market, an increasingly unwelcoming environment for high fashion, becoming more and more foreign-oriented, nationally attentive, and competitive.
Fabio Accinelli