Luxury market under pressure
According to a report by consultancy Bain & Company published in the second half of June, global sales of luxury personal goods in 2024 are expected to grow at their slowest pace since 2020. The biggest slowdown has been in China, where the phenomenon of "luxury shame" has been on the rise. The rise of this trend is largely influenced by the country's economic problems. Slow GDP growth, weak consumer confidence, unemployment and problems in the real estate sector have caused the Chinese to either shun luxury brands or to be more cautious about showing off luxury. Bain partner Claudia D'Arpizio explained to CNBC that they are leaning more towards "quiet luxury," which emphasizes timelessness and minimalism without overt signs of opulence. Neither of these trends are new, however. A similar shift was evident in the US during the 2008-2009 crisis.
Shared prosperity
The reintroduced 'shared prosperity' initiative has also played a significant role in influencing consumer behaviour in the Chinese market. The campaign, which is also the slogan of the ruling Chinese Communist Party, focuses on moderate wealth for all and rejects the 'worship' of money. In implementing this ideology, national regulators have announced a crackdown on influencers known for their lavish lifestyles. In the case of conspicuous displays of wealth, their accounts are usually blocked "for violating community rules," according to NBC News. There is a well-known case from 2022 when officials issued a code of conduct that banned presenters from conspicuous displays of wealth, displaying luxury, money or other assets on live broadcasts. This campaign, coupled with economic uncertainties, is leading consumers to more rational purchasing behavior and less ostentation.
Global impact on sales
China's economic problems and changing consumer preferences are also having a significant impact on global sales figures for luxury brands. Richemont, owner of the Cartier brand, saw only a 1% increase in sales in the second quarter of 2024, down sharply from nearly 20% growth in the same period last year, while Chinese demand was particularly weak. In contrast, Richemont's biggest growth was in Japan, where tourism boomed, according to the Bain report, suggesting that Chinese consumers are favouring purchases of luxury goods overseas. Britain's Burberry and German brand Hugo Boss are experiencing a similar problem. Preliminary estimates, show that Hugo Boss expects both quarterly and full-year sales to decline, while Burberry forecasts an operating loss in the first half of 2024.
Dior and Armani case
The luxury sector has not benefited from the recent indictment of Dior, a subsidiary of LVMH. During a supply chain investigation, it was discovered that the brand was paying as little as $57 apiece to produce handbags, which contrasts sharply with their high four-figure retail prices. According to Reuters, investigators in Milan uncovered inhumane working conditions for Asian workers, some without proper work permits, who were forced to work around the clock, including on holidays, and sleep in sleeping bags on the factory premises. Machine safety regulations were also allegedly not followed in the interest of higher production rates. During the investigation, the practices of the Armani brand, which paid USD 99 for a handbag costing approximately USD 2 000, also came to light. Both brands are now facing legal action. As reported by Businessinsider, prosecutors suggest that such practices are widespread among luxury brands trying to increase profitability.
Winners in a weakening market
Despite the overall weakening of demand in the luxury sector over several quarters, there have been some that have thrived. One of the most luxurious brands, Hermès, recorded a 17 per cent increase in sales in the first quarter of the year. Continued demand for its products, including in China, was confirmed by a 14 per cent increase in sales in the Asia Pacific region. This is due to the brand's exclusivity, specific approach to customers, limited supply and high demand, especially for Birkin handbags, which range in price from USD 12,000 to USD 200,000. The company has also already released its results for the second quarter of the year, with sales up 13 per cent. Another company that benefited in the 1st quarter of the year is the Prada Group, whose sales grew 16 percent year-on-year, while sales of the group's Miu Miu brand grew by 89 percent. Prada Group also reported a 16 percent increase in sales in the Asia Pacific region. The company's sales for the second quarter of the year were not yet available at the time of the deadline for this release.
Changing perception of luxury
The younger generation is paying more attention to the ecological impact of fast fashion and owning huge amounts of unnecessary clothing. They prefer companies with a philosophy of. Socially conscious luxury includes support for climate change and fair working conditions, use of eco-friendly and recycled materials. Importance is also given to localism and limited transportation. Top brands are aware of the changes in buyer preferences and are adapting to them to maintain their position in the market.
Olivia Lacenova, Chief Analyst at Wonderinterest Trading Ltd.
