Global Luxury Market Declines as Quiet Luxury Rises in China

China's richest individuals are increasingly opting for discreet fashion, a trend highlighted in a report published on Tuesday by Bain & Company. This shift comes as the global luxury market faces its weakest performance since the peak of the pandemic.

According to Bain's twice-yearly luxury report, global sales of personal high-end goods, including clothing, accessories, and beauty products, are projected to grow between 0% and 4% year-on-year at constant exchange rates. This marks the most sluggish growth since 2020, when the COVID-19 pandemic caused a sharp decline in sales.

The slowdown is particularly pronounced in China, where economic uncertainty has led middle-class shoppers to become more cautious, and wealthier individuals to avoid ostentatious displays of wealth. China's economic challenges, such as a struggling real estate market, slowing GDP growth, and rising unemployment, have fostered a more cautious consumer mindset.

"For the first time in history, we have in China the so-called luxury shame," said Federica Levato, Parner, Bain. This trend reflects a broader cultural shift, influenced by government policies promoting common prosperity and reducing income inequality, making conspicuous displays of wealth less socially acceptable.

In contrast to previous periods of economic prosperity, the current trend of "quiet luxury" is characterized by understated colors and high-end craftsmanship, rather than the bold colors and flashy logos that were previously popular. "It was a combination of discretion and snobbery," said an analyst for CNBC. This trend is easily replicated with neutral tones or monochromatic looks.

Young adults, in particular, are prioritizing durable pieces that can last more than one season, noted Thomaï Serdari, Director of the Fashion and Luxury Program at New York University’s Stern School of Business. This mindset opposes fast fashion, which is known for its sustainability issues and environmental impact due to greenhouse gas emissions and the use of cheap plastic fibers. “That is the new mindset that has allowed quiet luxury to stick around a little longer,” Serdari said.

Kering Group, the parent company of brands like Gucci, Balenciaga, Bottega Veneta, Yves Saint Laurent, Creed, and Alexander McQueen, reported  €4.05 billion in revenue in its first-quarter 2024 report, a 10% decrease due to exchange rate fluctuations and changes in consolidation scope. “Kering’s performance worsened considerably in the first quarter. While we had anticipated a challenging start to the year, sluggish market conditions, notably in China, and the strategic repositioning of certain of our Houses, starting with Gucci, exacerbated downward pressures on our top line,” said François-Henri Pinault, CEO, Kering Group. 

Luxury spending patterns are evolving, influenced by China's economic recovery and emerging markets like India. With an estimated 100 million affluent individuals projected in India by 2027, luxury brands are expanding their focus beyond traditional markets.

Germany's Beiersdorf noted that it has faced a "strongly declining" Chinese luxury skincare market this year, though its La Prairie creams, which cost several hundred dollars per jar, have gained market share. Similarly, Bain's report has heightened investor concerns about the sluggish recovery of Chinese luxury demand, impacting shares in companies like LVMH and Kering over the past year.

Conversely, top-tier luxury brands such as Hermes, known for its Birkin bags priced above US$10,000, are expected to perform better. These brands benefit from their exclusivity and appeal to ultra-high-net-worth individuals who are less affected by broader economic trends.

Luxury brands are adapting their strategies to these changes by enhancing customer experiences, investing in digital transformation, and emphasizing craftsmanship and sustainability. Experts believe that while the short-term outlook remains challenging, the long-term fundamentals of the luxury market are strong, driven by emerging affluent consumers and a growing appreciation for high-quality, timeless products.