Luxury Brands Suffer as Chinese Shoppers Cut Spending

The value of some of the world’s best-known luxury companies is plunging as Chinese consumers cut back on spending, with even the most exclusive brands feeling the impact.

First-half sales at Bernard Arnault’s luxury powerhouse LVMH, the owner of Louis Vuitton and Christian Dior, dropped 10% year over year in Asia excluding Japan, a region dominated by China. The decline accelerated, with sales tumbling 14% in the second quarter, according to results published late Tuesday.

Shares in LVMH, which also includes high-end jewelry and luxury hotel stays, dropped 4.7% on Wednesday, their biggest one-day decline since October. By Friday early afternoon in Paris, the stock was still 4.4% lower than before the earnings release.

LVMH’s downturn also affected Prada’s stock, which has fallen 3% since Tuesday. Prada, listed in Hong Kong, is due to report half-year results next week.

“For now, the (luxury) market remains volatile as investors reassess the once-held belief that luxury brands are a safe-haven investment, shielded from broader economic downturns,” Jochen Stanzl, chief market analyst at CMC Markets, told CNN.

Europe’s top 10 luxury companies have lost $250 billion in market value since March, Reuters reported Thursday.

The decline in LVMH’s sales in China is consistent with significant drops reported by Richemont, the owner of jeweler Cartier, and German carmaker Porsche.

Richemont’s sales fell 27% in China, Hong Kong, and Macao in the three months to the end of June, with low consumer confidence cited as a key reason. Porsche also noted weak demand in the luxury segment in China.

Mercedes-Benz reported a smaller drop in sales, with revenue in its cars division dipping 4% in the second quarter, attributing the decline to a slight contraction in the Chinese market.

Gucci owner Kering also experienced a “marked deceleration” in revenue in China in the first six months of the year, with trends not improving significantly in North America and Europe.

However, Hermes bucked the trend, reporting sales growth in all countries in the Asia region, excluding Japan, in the first half of 2024. Hermes is known for its Birkin handbags, which range from $10,000 to hundreds of thousands of dollars, and silk scarves.

China slowdown

The earnings reports reflect a striking turnaround in spending by Chinese shoppers, who splurged on premium goods after the lifting of pandemic restrictions, helping boost growth in the luxury sector.

China’s faltering economy is finally hurting brands catering to the wealthiest consumers. The country faces challenges, from sluggish consumer spending and a persistent property slump to a mounting debt crisis in local governments.

China’s economy grew 4.7% year-on-year in the second quarter, missing economists’ expectations and marking the weakest growth since the first quarter of 2023.

China’s economic slowdown may not be affecting all shoppers equally, but it appears to be curbing ostentatious purchases by the wealthy, in what consultancy Bain & Company has called “luxury shame,” similar to what happened in the United States during the global financial crisis.