Chinese luxury market falters as 'luxury shame' grips consumers
Chinese consumers are cutting back on spending due to their shaky economy. Luxury brands are beginning to feel the impact. Analysts point out that the concept of "luxury shame" is taking root in China. This term refers to avoiding luxury products in the face of financial difficulties for many families.
12:17 PM EDT, July 28, 2024
The term "luxury shame" emerged during the financial crisis that began in 2008. It was popularized by the American consulting firm Bain & CO. The firm used the term to describe the middle class in the U.S., who, due to financial hardships, stopped flaunting their wealth and luxury brands.
Currently, foreign analysts are using a similar term for the Chinese middle class. Analysts at Bain & CO emphasize that the Chinese market is under pressure from declining local demand due to growing economic uncertainty. This weakens consumer confidence among the middle class and leads to behaviors 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 percent, and in the second quarter by 14 percent. The published data did not sit well with the Paris stock exchange, causing LVMH shares to drop by 4.5 percent, and Arnault lost $20 billion.
The portal reports that similar problems were felt by Prada, listed on the Hong Kong stock exchange, whose shares fell by 3 percent this week. The company is soon to 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 that owns brands like Cartier, Chloe, and Montblanc, is also experiencing difficulties in the Chinese market. Last week, it reported that its product sales in China, Macau, and Hong Kong fell by 27 percent from April to the end of June.
Mercedes-Benz, the luxury car manufacturer, also reported a 4 percent decrease in sales in China in the second quarter. Kering, the owner of the Gucci brand, noted a "significant decline" in revenues in China. Reuters summarized that since March, the market value of the ten largest European luxury companies has decreased by $250 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. This is 0.6 percentage points lower than in the first quarter and does not meet economists' expectations, being the weakest result since early 2023. Chinese media described this outcome as an "economic disappointment".
