Hugo Boss, Burberry, Richemont, and Swatch have all called out slumping sales in China this week as consumers cut back on luxury spending.
Hugo Boss said in its preliminary Q2 financial results on Monday that the Chinese market — a key one for the German fashion brand — was “particularly challenging.”
British fashion house Burberry’s sales in mainland China fell 21% year-over-year in the most recent quarter, which board chair Gerry Murphy attributed to “deteriorating consumer confidence” in an investor call on Monday. The Chinese market had been “weaker than we expected,” he said.
Swiss watch group Swatch said it expects the Chinese market “to remain challenging for the entire luxury goods industry until the end of the year.”
China, the world’s second-most populous country, is a key market for luxury brands.
Bain & Company said in a report earlier this year that China’s luxury market tripled in size between 2017 and 2021, but suffered a sharp decline in 2022 due to the impact of COVID-19 restrictions. There was a “significant” rebound in 2023 as lockdown restrictions were lifted.
But much of this spending has been overseas, and sales in China have fallen for some of the world’s biggest luxury brands. Here’s why they’ve been struggling.
Economic growth is slowing
China’s economy grew just 4.7% year-over-year in the second quarter of 2024, missing forecasts and slowing from the 5.3% growth reported by officials in the first quarter.
Shoppers simply haven’t been spending enough money: Sales of clothing, shoes, and hats were down 1.9% in June year-over-year, per Chinese government data, despite growing disposable income.
Bain said in a June report that China’s economic environment was “undermining middle-class consumer confidence, leading to ‘luxury shame’ behavior similar to what occurred in the Americas during the 2008-09 financial crisis.”
Luxury shaming refers to people being hesitant to buy and show off high-price status items during periods of economic downturn.
Swatch said in its financial release on Monday that there had been a “sharp drop in demand for luxury goods in China” and Southeast Asian markets, which it said are “heavily dependent” on Chinese tourists.
“Swatch Group is most exposed to Chinese middle-class consumers, who are clearly on the back foot,” Bernstein luxury goods analyst Luca Solca wrote in a note to clients on Monday.
In Solca’s commentary on results posted by Richemont this week — which reported a 27% drop in sales for China, Hong Kong, and Macau for Q1 of fiscal 2025 — he said that it “confirms lackluster demand” in this area. Richemont owns brands including Cartier, Vacheron Constantin, and Chloé.
Some luxury brands, including Marc Jacobs, Burberry, and Versace, have resorted to offering big discounts in China to reel in shoppers and get rid of excess inventory, The Financial Times reported this week.
Marc Jacobs, for example, was offering discounts of more than 50% on Alibaba’s upscale e-commerce platform Tmall Luxury Pavilion this month, the FT wrote.
Chinese shoppers are spending overseas instead
Instead of buying luxury goods at home, some Chinese shoppers have been taking advantage of Japan’s weak currency to make big-ticket purchases there instead.
The weakening yen has made visiting and spending in Japan more affordable for overseas visitors, leading to booming tourism.
More than half a million tourists from mainland China visited Japan in May, making up nearly 18% of visitors to the country that month — though this is well behind the post-pandemic rebound for other tourists in Japan.
Well-off Chinese shoppers typically make their expensive purchases while traveling overseas.
Before the pandemic, about two-thirds of Chinese luxury spending occurred outside mainland China, plummeting to less than 10% in 2021 and 2022 because of travel restrictions, according to data from Bain.
The consultancy said that this started to rebound in 2023 with the return of overseas tourism, with an estimated 30% of luxury spending taking place outside mainland China.
Richemont said in its financial release on Tuesday that Japan had posted the strongest regional sales growth during its most recent quarter, at 59%, partly fuelled by “thriving tourist spending” from Chinese, South Korean, East Asian, and American clients.
Prada, too, credited its 46% year-over-year growth in Japanese sales in the first quarter partly to a boom in tourist spending.
Its CEO said at The Financial Times’ Business of Luxury Summit in May that Japan was “on fire,” per Reuters.
But this, in turn, means Chinese travelers are spending less in their home country.
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