Luxury brands feel the pinch as 'luxury shame' grips China's market
Chinese consumers are cutting back on spending due to their shaky economy, and luxury brands are beginning to feel the impact. Analysts point out that "luxury shame" is taking root in China. This term refers to avoiding luxury products in the face of financial difficulties for many families.
28 July 2024 19:41
The term "luxury shame" emerged during the last financial crisis that began in 2008. It was popularised by the American consulting firm Bain & Co. The firm used the term to describe the middle class in the US, which, due to the financial hardships of millions, stopped flaunting their wealth and luxury brands.
Currently, foreign analysts are using a similar term for the Chinese middle class. Analysts at Bain & Co emphasise that the Chinese market is under pressure from declining local demand due to growing economic uncertainty, which weakens consumer confidence among the middle class and leads to behaviours reminiscent of those in America during the financial crisis.
Luxury brands face challenges in China
This trend is confirmed by data published by LVMH, Bernard Arnault's luxury empire. In the first half of the year, sales in Asia fell by 10 per cent and in the second quarter by 14 per cent. The published data did not sit well with the Paris stock exchange, causing LVMH shares to drop by 4.5 per cent, and Arnault lost £16 billion.
The portal reports that similar problems were felt by Prada, listed on the Hong Kong Stock Exchange, whose shares fell by 3 per cent this week. The company will soon release its financial results for the first half of the year, and if they show further decline, the stock market may react negatively.
Richemont, the Swiss holding company owning brands like Cartier, Chloe, and Montblanc, also complains about difficulties with the Chinese market. Last week, it reported that from April to the end of June, its product sales in China, Macau, and Hong Kong fell by 27 per cent.
Mercedes-Benz, the luxury car manufacturer, also reported a 4 per cent decrease in sales in China in the second quarter. Kering, the owner of the Gucci brand, also noted a "significant decline" in revenues in China. Reuters summarised that since March, the market value of the ten largest European luxury companies has decreased by £200 billion.
Experts note that the economic slowdown in China may not affect all consumers equally, but it seems to be curbing ostentatious purchases by wealthy individuals. Official data published a week ago shows that in the second quarter of the year, the Chinese economy grew by 4.7 percent year-on-year, which is 0.6 percentage points lower than in the first quarter. This does not meet economists' expectations and is the weakest result since the beginning of 2023. Chinese media described this outcome as an "economic disappointment."
