Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / How Chinas Luxury Slowdown Is Reshaping Global Brand Strategy
Transcript
- Lucas: LVMH just reported its Q2 numbers, and for the first time since the pandemic, China was a drag, not a driver. Sales in the Asia region — which is mostly China — fell 8 percent year-over-year. That’s a big deal for a company that gets nearly a third of its revenue from Chinese shoppers. Luna: And it’s not just LVMH. Burberry warned on profits. Kering, which owns Gucci, has been struggling in China for over a year now. What changed? Lucas: Multiple things hit at once. First, the property market. For years, rising home values made Chinese consumers feel wealthier — that wealth effect drove a lot of luxury handbag and watch purchases. Now property prices are down 10 to 15 percent in major cities. That psychological hit is real. Luna: And the job market for young people is brutal. Youth unemployment is still above 20 percent. If you're a 25-year-old in Shanghai worried about your job, a 5,000-dollar handbag isn't top of mind. Lucas: Exactly. That’s the second layer — the income and confidence shock. We saw it in the latest consumer confidence data: it’s at levels we haven’t seen since the early pandemic. So luxury is now a discretionary spend that people are cutting. Lucas: But there’s a third, subtler shift: the nature of status signaling is changing in China. Younger consumers, especially women, are moving away from conspicuous consumption. They’re buying experiences over objects, or they’re buying domestic brands that feel more authentic. Luna: If walking through the economy with us has made something click, the way these episodes stay ad-free — no sponsor breaks, no mid-rolls — is listener support. It’s at buy me a coffee dot com slash fexingo. Truly helps keep the conversation going. Lucas: Yeah, that’s how we keep doing this every day. And speaking of shifting status signals — let’s talk about the brand that’s actually gaining share in this environment. Luna: Is that Shang Xia? The Hermes-backed Chinese brand? Lucas: Exactly. Shang Xia is positioned as a heritage craft brand — think cashmere, porcelain, Ming-style furniture. It’s priced at Hermes levels but it’s selling the story of Chinese artistry. In a market where nationalism is rising and consumers want to signal cultural sophistication, that’s a winning play. Luna: And it’s not just Shang Xia. We’re seeing a whole cohort of domestic luxury brands — like Icicle, or the jewelry brand Qeelin — that are growing at 15 to 20 percent annually while the global giants are flat or down. Lucas: Right. But let’s be clear — the global brands aren’t walking away from China. They’re adapting. One strategy is price adjustments. Some brands are lowering prices in China to narrow the gap with European prices, because Chinese consumers have become savvy shoppers — they know when a bag costs 30 percent more in Shanghai than in Paris. Luna: And they’re also investing in lower-tier cities. The top-tier cities like Beijing, Shanghai, Guangzhou are saturated. But there are 200 cities in China with populations over a million. That’s where the next wave of luxury consumers lives. So brands like Louis Vuitton are opening stores in Chengdu, Hangzhou, even Changsha. Lucas: Chengdu specifically has become a luxury hub. It has one of the highest concentrations of luxury malls in the country. And the consumers there tend to be younger, more digital-native, and more open to new brands. That’s a huge opportunity. Luna: But there’s also the resale market. In the West, resale has been a threat to new luxury sales. In China, it’s actually helping the market stay liquid. Platforms like Poizon and Zhuanzhuan let consumers buy and sell luxury goods, and that keeps the category top of mind — even if people are buying pre-owned. Lucas: That’s a good point. Resale can actually sustain interest in a brand when new sales are slow. It keeps the logo visible, keeps the aspirational dynamic alive. And for younger consumers, buying pre-owned is both a value play and a sustainability statement. Luna: So what does this mean for the global luxury giants? Should they chase the mass market in China or stay ultra-exclusive? Lucas: It’s a real tension. If you go too mass, you lose the exclusivity that makes luxury luxury. If you stay too exclusive, you miss the revenue growth. The smart play seems to be a bifurcated strategy: keep the ultra-high-end for the top 1 percent, but create accessible entry lines — think Dior lipstick, or Tiffany silver — for the aspirational middle class. Luna: And that middle class is still huge. Even with the slowdown, there are 400 million people in China who are considered middle class. That’s more than the entire population of the United States. So the potential is still enormous. Lucas: But the growth rate is slowing. The Boston Consulting Group projects that the Chinese luxury market will contract 3 percent this year, after growing 12 percent last year. So it’s a pause, not a collapse. But it’s a pause that requires strategic rethinking. Luna: Are any global brands actually pulling back from China? Lucas: Not pulling back, but shifting investment. Some are accelerating plans in India and Southeast Asia. LVMH opened its first Maison in Mumbai this year. Kering is doubling down on Korea and Japan. They’re hedging their bets. Luna: But Japan and Korea are different markets. Japan is mature, low growth. Southeast Asia is fragmented. India has potential but the luxury infrastructure isn’t there yet. So China remains the prize. Lucas: Absolutely. No one is abandoning China. The question is how to navigate a market that is still enormous but is suddenly more price-sensitive, more nationalist, and more skeptical of overt luxury. Brands that tell a story of craftsmanship, heritage, and cultural respect are going to win. Luna: And maybe that means global brands need to hire more Chinese designers, collaborate with local artists, tell Chinese stories. Not just sell the same bag they sell in Paris. Lucas: Exactly. Look at what Gucci did with the Chinese artist Xu Zhen — a collaboration that resonated deeply. Or how Dior uses Chinese ambassadors like the actor Wang Yibo. Those moves matter more now than ever. Luna: So the takeaway: China is still the world’s most important luxury market, but the game has changed. Brands that adapt will survive. Those that don’t will struggle. Lucas: And we’ll be watching the next few quarters closely. If consumer confidence bounces back, we could see a sharp recovery. But if the property slump drags on, this could be a longer reset. Either way, it’s a fascinating moment for the industry.