Where Did the Luxury Consumers Go? It’s Been a Bad Year for Big Brands

LONDON — The Chinese call it tang ping, or “lying flat,” and the pose has been crushing luxury sales and profit growth since the country finally lifted its pandemic restrictions last year.

The slang phrase refers to a temporary loss of ambition, drive and the desire to engage, create and consume. Instead, those who “lie down flat” are pausing, rethinking their priorities and seeking a simpler life at a time when China faces so many economic challenges.  

While tang ping may be a boon for some people’s health, it’s been disastrous for the luxury goods industry, which has long viewed China as one big cash machine, responsible for a big chunk of annual revenue, both at home and through tourist spend abroad.

While the past 12 months have been difficult for the big brands and luxury groups, due to China and the rising ticket prices on luxury goods generally, the first half of 2025 isn’t looking much better.  

Richemont chairman Johann Rupert is taking a realistic approach to the slowdown in Chinese demand, which has been denting his brands’ sales and profits.

Rupert believes that “uncertainty has become the norm, while the weakness in Chinese demand will take longer to recover.” Worryingly, he and his colleagues at Richemont have referred to the downturn in China as “a midterm, or long-term phenomenon.”

Barclays feels the same way. Analysts said they’re expecting mainland China to remain “under pressure” due to the ongoing weakness of the property market, high youth unemployment and weak consumer confidence levels.

Although China has been putting new economic stimulus measures in place, the country has warned they will be moderate — not bold. The country is also trying to brace for potentially punishing tariffs on exports to the U.S. once Donald Trump becomes president in January. Nonetheless, Chinese President Xi Jinping this week reaffirmed that the country would hit its growth target of 5 percent this year and stressed it would remain the world’s engine of economic growth going forward.

Others take a different view. As a result of pressures, Barclays is forecasting “a small positive growth” in demand from the Chinese cohort in 2025.

Bernstein is equally cautious.

The bank said that Chinese spend “took a decisive turn for the worse” in the third quarter of 2024, and “the jury is out whether this will be transient.” Its growth expectations for Chinese spend in 2025 are now in the low-single-digits.

Few luxury brands and categories have escaped the downturn in consumption, which has also been the result of the post-pandemic inflationary pressures, and higher interest rates worldwide.

Luxury watches have been particularly hard hit, with Swiss exports in the month of September contracting sharply, slumping 12.4 percent in value and 20.8 percent in volume, according to the Federation of the Swiss Watch Industry.

The industry organization described September’s decline as “the most marked of the year” to date, with a total value just hovering above the 2 billion Swiss francs mark.

The FHS had already expressed a negative outlook for the rest of the year.

For the first nine months of 2024, the Swiss watchmaking sector saw exports decline by 2.7 percent. Exports to China and Hong Kong fell 49.7 percent and 34.6 percent year-on-year in the month.

In the first six months of Richemont’s fiscal year, sales at the watch division, home to brands including IWC, Panerai and Vacheron Constantin, declined 17 percent to 1.7 billion euros. 

Richemont said the decline in demand for watches “highlights the need for discipline and caution regarding overproduction, and underscores the importance of adapting to changing market conditions.”

Overall, Richemont’s first-half shrinkage was small thanks chiefly to jewelry, the group’s largest division, where sales rose 2 percent to 7.1 billion euros. The division benefited from robust demand worldwide, with the exception of China.

Kering is another group that felt the impact of tang ping. It has already fired off a slew of profit warnings this year, and recently extended its arsenal of cost-cutting measures to counter an expected 50 percent drop in operating profit for fiscal 2024.

Layoffs, store closures and contract renegotiations are all in the pipeline as the French luxury conglomerate seeks to right its ship after a tougher-than-expected third quarter that saw its star brand Gucci again miss expectations amid a sharp slowdown in China and Japan.

“Our absolute priority is to build the conditions for a return to sound, sustainable growth, while further tightening control over our costs and the selectivity of our investments,” said François-Henri Pinault, chairman and chief executive officer of Kering.

The group, which also owns brands including Saint Laurent, Bottega Veneta and Boucheron, missed analysts’ estimates, reporting a 15 percent fall in revenues to 3.79 billion euros in the three months to Sept. 30, representing a decline of 16 percent in comparable terms.

Kering revenues from Chinese nationals were down 35 percent at group level in the third quarter, and it’s too early to know when the government stimulus measures will bear fruit, the company said.

By comparison, organic sales at LVMH Moët Hennessy Louis Vuitton’s key fashion and leather goods division fell 5 percent year-over-year in the third quarter.

The world’s biggest luxury group missed market expectations with a 4.4 percent drop in overall revenues in the third quarter, blaming lower growth in Japan and a “marked deterioration” in sales of clothing and accessories to Chinese nationals.

Overall sales in its key fashion and leather goods division were down 5 percent on a like-for-like basis versus the same period last year, sharply below a Visible Alpha consensus forecast for a 1 percent increase.

The sector leader’s struggles illustrated the depth of the crisis in confidence among Chinese consumers.

Their spending on fashion and leather goods was down in the midsingle digits in the third quarter, after rising in the mid- to high-single digits during the first half of the year, the company said.

Burberry was also hit hard by the slowdown in China which, as recently as 2020, generated 40 percent of its revenues at home and abroad.

In the first fiscal half, comparable store sales in Asia-Pacific overall declined 25 percent, while in mainland China comparable store sales fell 24 percent.

In the first six months, overall comparable store sales were down 20 percent, with double-digit declines across all regions. The company reported an adjusted operating loss of 41 million pounds, compared with a profit of 223 million pounds in the corresponding period last year.

The company is undergoing a transformation under new CEO Joshua Schulman, who is attempting to attract Burberry’s traditional, core customers with a focus on icon products such as the check scarf and the trench.   

Schulman has said that Burberry is “acting with urgency to course correct, stabilize the business and position Burberry for a return to sustainable, profitable growth.” He said he has no doubt that the company’s “best days are ahead.”

Schulman is also looking to adjust Burberry’s pricing by broadening the entry price offer, and dialing down the prices in categories where the brand has less authority, such as leather handbags.

Burberry is not alone is taking a fresh look at spiraling prices, which have also been a great contributor to the slowdown.

Nosebleed prices have spooked the aspirational customer, and forced even the wealthiest clients to wonder if they’re still in the mood to pay 510 pounds for a cotton jersey, short-sleeve T-shirt from brands including The Row.

Luca Solca, luxury analyst at Bernstein, has calculated the eye-watering inflation of recent years.

According to Bernstein, between 2020 and 2023, when consumers gorged on luxury goods in a post-pandemic spending spree, prices increased 66 percent at Dior, 59 percent at Chanel, 54 percent at Moncler, 43 percent at Prada, 31 percent at Louis Vuitton, 25 percent at Saint Laurent, 21 percent at Gucci, 20 percent at Hermès and 18 percent at Burberry.

HSBC analyst Erwin Rambourg has called it “greedflation” — and a big sector headwind that cannot be fixed rapidly.

“With very few exceptions, most brands have indeed increased prices too much and too quickly,” he contended in a recent report. “Many would benefit from rebuilding a stepping stone for the aspirational consumer to come back, after that consumer recently got priced out.”