Luxury retailers globally pinning hopes on Chinese high-net-worth individuals face a potential setback as recent reports indicate a decline in the appetite of wealthy Chinese shoppers for high-end goods. According to a report by Agility Research & Strategy, tracking consumer sentiment among affluent Chinese, there has been a «decline in optimism» among high-net-worth individuals over the past six months, primarily due to poor investment performance in real estate and the financial market.
The report, based on a survey of 2,000 affluent Chinese, including over 600 high-net-worth individuals, indicates a shift in sentiment since April. Despite an initial rebound in the first quarter of 2023 after China’s reopening from the Covid pandemic, a steady downward trend has been observed, with the wealthier segment turning less bullish about investments.
Chinese consumers have grown increasingly cautious amid economic challenges, including a property market crisis and elevated youth unemployment. Deflationary pressures and concerns about the country’s economic trajectory have contributed to a muted recovery in luxury spending. Estimates from Bain & Co. suggest that Chinese consumers are expected to contribute 22-24% of worldwide luxury spending in 2023, down from 33% in 2019.
Monthly luxury spending monitoring by HSBC indicates only a «muted recovery» in Chinese consumption, with October spending on luxury reaching just around 81% of the 2019 level. Specifically, Chinese spending on luxury in Europe in October reached only 52% of the pre-pandemic level.
Bain highlights headwinds facing the global luxury market in the fourth quarter, including macroeconomic tensions in China and sparse signs of recovery in the US. Challenges affecting Chinese consumer confidence include normalized GDP growth rates, fluctuating real estate markets, and increasing youth unemployment.
Luxury bellwethers LVMH and Richemont have reported sales growth challenges in Asia, particularly in China, signaling a potential pullback in consumer spending. The overall luxury goods and apparel segment in Europe reported slower sales growth in the third quarter, driven by disappointing demand in China and the US.
This shift in consumer sentiment emphasizes the evolving landscape for luxury retailers, prompting a need for strategic adjustments in response to changing economic dynamics in key markets.
