Luxury Brands in China Face Reset as China’s Luxury Market Plummets 20%

China's luxury market experienced a significant decline in 2024, contracting by an estimated 18%–20%, according to Bain & Company's latest report on the China Luxury Goods Market. This downturn marks a sharp reversal from previous years of growth and reflects a combination of factors, including weakened consumer confidence, a surge in overseas spending, and changing consumer preferences.

Key Drivers of the Decline

The report identifies several key factors contributing to the decline:

• Weakened consumer confidence: Economic uncertainties and a decline in real estate value have led to a more cautious attitude toward spending, particularly on discretionary items like luxury goods.
• Surge in overseas spending: As international travel rebounded, Chinese consumers increasingly opted to make luxury purchases in other markets, particularly Japan and Southeast Asia, attracted by favorable exchange rates and superior experiences.
• Changing consumer preferences: Chinese consumers are becoming more rational about luxury spending, showing reluctance to purchase amid frequent price increases with limited product innovation and preferring experience-based consumption, such as travel and outdoor activities.

Category Performance

All luxury categories faced challenges in 2024, although the impact varied:

• The beauty sector, particularly perfumes, color cosmetics, and ultra-premium skincare, demonstrated stronger resilience as consumers seek emotional and sensory experiences.
• The fashion segment experienced a smaller decline compared to leather goods, largely due to its seasonal nature and the importance of its Very Important Customer (VIC) demographic.
• Leather goods suffered from over-reliance on iconic pieces and carry-overs with limited investment into seasonal items and higher unit prices, leaving consumers with little incentive to make additional purchases.
• The jewelry and watches segment faced the most significant challenges as consumers shifted their preferences toward other value-preserving assets and experiences.

Overseas Spending and the Daigou Market

As Chinese overseas tourism gradually resumed, it is estimated that approximately 60% of Chinese mainland luxury spending occurred within the Chinese mainland in 2024. The recovery of luxury spending by Chinese tourists in Europe and Asia has been significant.

The pricing disparities between luxury goods on the Chinese mainland and other markets, particularly Japan, played a crucial role in the resurgence of overseas luxury shopping in 2024. The grey market also grew by approximately 5% in 2024.

Hainan's Duty-Free Market

Hainan’s duty-free sales declined by approximately 29% in 2024, reflecting the broader consumption slowdown in China.

The recovery of global tourism, particularly to nearby destinations like Japan and Southeast Asia, which offer comparable travel times and costs but superior services and experiences, primarily drove the decline in traffic.

Looking Ahead

The report anticipates that the Chinese luxury market will remain under pressure in the first half of 2025, with a potential for stabilization in the latter half of the year. Bain emphasizes the need for brands to shift their focus from expansion to consolidation and performance improvement, prioritizing brand desirability, product innovation, and client experience.

“In this challenging environment, brands should prioritize enhancing brand desirability and delivering genuine value through initiatives such as brand-building events, creativity, product innovation, and improved client experiences to retain consumers domestically and capture market share from competitors,” the report states.

Furthermore, brands should adopt a global perspective, collaborating across regions to address issues such as pricing disparities and the Daigou market.

While challenges remain, Bain remains optimistic about the long-term potential of China's luxury market, noting the country's large addressable luxury population and the potential impact of government stimulus policies. Brands that use this period to “reflect, refocus, and reset” are likely to be best positioned to navigate the turbulence and regain growth momentum in the years ahead.