China’s wealthiest maintain a ‘quieter’ stance on luxury as the economic outlook deflates in Q3

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A slowdown in post-lockdown retaliatory spending in China throughout Q3 points to tighter wallets, painting a conservative outlook for luxury in the coming months. The year kicked off with an uplift in luxury sales largely credited to revenge shopping and gifting around Lunar New Year, just as the country’s pandemic-related restrictions slackened. However, with spending slowing and waning consumer confidence becoming more apparent, luxury brands in China will have to up the ante to make the most of what’s left of the year.

Contrary to predictions around Chinese rebound sales sustaining for longer, nearly 50 per cent of luxury consumers in China surveyed by Vogue Business and Barclays spent less than RMB 22,499 (£2,562) on luxury items in Q3 (the three months ending September 2023). Compared to Q2, that’s an increase of 10 percentage points in the number of shoppers in the lower-spend tier (RMB 22,499 or less), driven by a steady influx of middle-tier spenders (RMB 22,499 to 52,499) into the lower tier. Could China be heading towards a normalisation in spending, or is the frugality a reflection of the economy weighing down on people’s discretionary purchases?

The wider economic situation is likely to be having an impact on luxury spending. China’s GDP growth forecast for 2024 has been slashed to 4.4 per cent in the latest October update, per the World Bank (down from the predicted 4.8 per cent). The fall has widely been attributed to the region’s shrinking property market, rising debt, and concerns surrounding the country’s ageing population, prompting reduced levels of investment and consumption, particularly in the luxury sector. Analysts at Barclays expect China’s GDP to grow 4 per cent in 2024. Although there continues to be a certain level of resiliency among China’s wealthiest, currently, 47 per cent of Chinese luxury shoppers say they are still concerned about the country’s economic uncertainty, while 22 per cent are worried about losing their job, flagging a potential decreased appetite for indulgence.

“We have become more cautious on the short-term outlook of luxury demand in mainland China,” says Carole Madjo, head of Barclays luxury goods equity research. “We fear that the macro headwinds are now also affecting the affluent cohort of consumers, leaving the very wealthy consumers as the only cohort with positive momentum.”

Mainstream hard luxury players brace for a slowdown

There is a coherent decline in the number of shoppers in China spending across all major luxury brands and categories except home decor and other ready-to-wear apparel. Chanel and Dior lead the pack, albeit with reduced uptakes.

Following the dip from Q1 to Q2, handbags have been gradually emerging as one of the most resilient categories throughout Q3, with 33 per cent of consumers purchasing the category in this quarter, unchanged from Q2. In particular, women aged 35 to 44 are purchasing handbags above the average (37.6 per cent versus 32.6 per cent of all respondents). This resilience contrasts with other categories: jewellery purchases fell from being purchased by 46 per cent to 40 per cent of all respondents, dress shoes dropped from 35 per cent to 30 per cent, and casual shoes from 41 per cent to 38 per cent.

In line with the study’s Q2 forecast, although jewellery continued to top the charts, it also witnessed the biggest decline within a category. Unlike Q2, where the number of consumers purchasing jewellery did not vary across age groups, in Q3, luxury jewellery purchases have been largely driven by consumers aged 25-34 (45 per cent versus 40 per cent of all respondents) with high-net-worth individuals also continuing to outperform in the category, steered mainly by women from tier 1 cities in the RMB 750K+ income group.

Stealth wealth rises amid economic concerns

Given the current economic climate, China’s wealthiest seem to be opting for less ostentatious displays of status. Forty-nine per cent of China’s luxury shoppers, for instance, prefer minimal logos and timeless pieces that never go out of style, signalling that the nation’s richest could be increasingly buying into ‘stealth wealth’ (or the laoqianfeng style as referred to locally). As the economy casts a shadow over Gen Z and other aspirational shoppers who drove the post-lockdown surge with bolder choices, and the government continues to push for its notion of ‘common prosperity’, luxury in China is mostly likely to be sustained by mature shoppers reviving the ‘old-money’ aesthetic of understated elegance and products with minimal logos.

Based on the present study, uptake of the trend is further echoed on the runway by labels, including Saint Laurent, which has remained resilient throughout Q2. Forty-seven per cent of luxury shoppers say they are concerned about the Chinese economy compared to 45 per cent in the past quarter, and many are turning away from highly distinctive or logo-laden clothing. As Barclays’s Madjo puts it: “The level of respondents that purchase fashionable luxury pieces enabling them to stand out has come down by 5 percentage points compared to the previous quarter. We think this could reflect a more prudent view towards wealth flaunting at a time where the macro environment remains challenging”.

Domestic spending continues to flourish

Chinese luxury shoppers continue to favour domestic travel, with more than half (57 per cent) expecting to travel within Mainland China and Chinese territories of Hong Kong or Macau in the next three months. The majority of shoppers (70 per cent) continue to prioritise shopping online or from physical stores in their own city. While 58 per cent expect to purchase luxury items in mainland China in the next three months, almost the same proportion (56 per cent) of luxury shoppers expect to purchase in Hong Kong or Macau. China’s domestic duty-free haven of Hainan continues to be the region’s hotspot for high-end spending, attracting investment in retail infrastructure such as the most recent bid from DFS Group (LVMH’s travel retail wing) for a large-scale shopping, entertainment and hospitality nexus, which the company says will host more than a thousand luxury brands in the hope of attracting 16 million visitors annually by the close of the decade. As such, China and its territories expect to be some of the biggest beneficiaries of Chinese luxury spending in the next three months.

In terms of international travel, Chinese luxury consumers seem to have roughly equal preferences for travel within and outside of Asia (47 and 45.5 per cent, respectively). International pull factors mainly stem from a combination of expense and exclusivity, with more than 40 per cent of shoppers citing brands or products that are relatively cheaper abroad and exclusive pieces which wouldn’t usually be retailed in home markets as reasons to consider spending outside China. Beyond China and its territories, Europe emerges as the biggest hotspot for international spend for Chinese luxury consumers (29 per cent), followed by Japan and South Korea (27 per cent). Yet, with cheaper products a big driver of international spend, luxury purchases abroad remain dependent on the recovery of China’s currency which has been weakening throughout 2023.

Key takeaways:

• As China’s economic output declines, Q3 draws attention to luxury brands gearing up for a potential downturn in sales, at least until the holiday season, with spend expected to pick up in Q4. With aspirational shoppers being bogged down by tighter wallets, luxury in China is mostly likely to be sustained by ultra-high-net-worth shoppers reviving the old-money aesthetic in quieter, toned-down styles.
• Although traditional luxury giants like Chanel, Dior, and Louis Vuitton continue to top the charts, brands with understated collections and subtle logo elements, such as Saint Laurent, have shown resilience against decreased spending. As the macroeconomic climate remains challenging, Chinese consumers may be less willing to flaunt wealth.
• Domestic spending remains strongest, yet over a quarter of Chinese luxury shoppers expect to purchase in Europe, Japan and South Korea in the next three months. With cheaper products a key driver of luxury spend abroad, this will remain dependent on the strength of Chinese currency in relation to international currency.
• On the whole, with deflation biting at profits and aggravating indebtedness, luxury brands in China may want to buckle up for wider change as the world’s second-largest economy attempts to restore investment and consumerism with innovation in social, structural and regulatory reforms.

Boilerplate: *Vogue Business surveyed 532 luxury consumers in China, aged 18-64 in March 2023, 502 respondents in June 2023 and 506 respondents in September 2023. Consumers were split by natural fallout across gender and age group (18 -24, 25-34, 35-44, 45-54 and 55-64). Respondents were luxury shoppers with a minimum spend of RMB 1,000 ($145) on a single item or a total spend of RMB 8,500 ($1,236) over the last 12 months. Respondents were asked about their luxury shopping habits, spending and travel, as well as planned spending activity over the coming months. This is the third edition of an ongoing quarterly study of Chinese luxury consumers in partnership with Barclays Research.

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