SHANGHAI — The market for luxury goods in China has crashed in 2024.
In early August, two high-end shopping malls in Wuhan launched major rebate offers, with luxury stores like Louis Vuitton and Hermès participating. Such special offers are extremely rare for luxury brands, which make a veritable policy of never lowering their prices. Louis Vuitton responded to questions from loyal customers, insisting that their products had in fact not been discounted. The brand claimed they were unaware of the promotion, which was subsequently canceled.
The “discount storm” reflects the larger collapse in China’s luxury market. On July 23, a UBS research report indicated that luxury sales in mainland China have fallen by approximately 10% so far this year. The report attributes this slowdown primarily to China’s real estate slump and a wave of pay cuts in the financial sector.
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Over the past decade, China’s rapid economic progress and spreading wealth have led to the rise of a substantial middle class. After satisfying basic needs like food, clothing, and transportation, many people feverishly pursued the status symbols attached to luxury goods, driving the industry’s rapid double-digit annual growth.
Today, however, the core of China’s luxury market is struggling to cope with the post-pandemic economic downturn. As a result, consumers are increasingly re-evaluating luxury purchases from a more practical perspective.
Shanghai resident Ai Min* had worked in the financial sector for 15 years. For ordinary people, luxury goods were out of reach, but compared to her income, they were just slightly more expensive than her daily consumer goods. Before the pandemic, the city regularly hosted red carpet receptions and high-end banquets, which naturally required luxury bags from brands like Hermès, Chanel, and Louis Vuitton as status symbols. Ai Min used to buy one or two luxury bags per year, and so far, she has accumulated 30 brand-name bags. There’s been no such buying lately.
Recycling brands
Ai Min and her colleagues were once very optimistic about the future. “When the economy is on the upswing, people are not sensitive to price, and buy what they want,” she explained. “It’s mainly the pursuit of emotional value.”
With this optimism, Ai Min left the financial industry before the pandemic and began a business in the cultural sector. Initially, her earnings exceeded what she made in finance, but the pandemic soon changed everything.
It has only worsened.
“When the pandemic started, we thought it would be over in a few months or at most a year. But then Shanghai went into lockdown in 2022, catching everyone off guard,” she recalled.
After the lockdown ended last year in early 2023, she said the hope was that the macroeconomic environment would improve. “But it has only worsened,” she said. Many of Ai Min’s friends have echoed her sentiment, saying this year’s economic situation feels worse than last year.
Over the past two years, Ai Min has only bought a second-hand Hermès saddlebag. “Luxury goods are dispensable when the economic outlook is uncertain.” The good news is that with fewer high-end banquets and events in Shanghai because of the economic crash, luxury items have become less necessary.
Also, Ai Min has not only reduced her luxury purchases, but also sold more than 10 bags and multiple designer outfits and shoes over the past year.
Downsizing and goodbyes
Tang Xin, who works in the health tech industry in Shanghai, had purchased over 30 luxury bags and several silk scarves and watches from luxury brands over the years. This year, she has refrained from purchasing luxury bags due to concerns about the economic outlook and has adopted a more cautious approach to spending.
At the time of the interview, Tang Xin’s company was in the process of downsizing its business units, with some employees being merged into her department. She was busy handing over work to departing colleagues. “The company started laying off employees last year, and every day I worried that I might be next.” So far, the layoff rate has reached 36%.
Luxury goods are dispensable when the economic outlook is uncertain.
While the company’s financial situation hasn’t yet impacted Tang Xin’s personal income, she is worried about the company’s future. Luxury goods, once symbols of aspiration, now seem impractical. “They’re just not worth the cost anymore,” she remarked.
Since last year, her company’s shrinking business has drastically reduced social entertainment and business gift-giving. Earlier, Tang Xin would buy luxury silk scarves, ties, cardholders, or passport holders for high-end clients on holidays or special occasions. “If you worked closely with a boss, you might give gifts like Hermès cashmere scarves for their birthdays. They couldn’t be cheap, but not overly expensive either.”
Now, Tang Xin has sold around 70% of her luxury goods. A bag she bought for 20,000 yuan (,535) is now worth only 8,000 yuan (,128) on the second-hand market. She has seen similar devaluation in a Chanel hobo bag, a silk scarf and Bulgari necklace.
Second-hand price drop
As consumer purchasing power declines, the middle class has adopted a more rational attitude toward luxury goods, leading to a slump in the second-hand luxury market this year. When the resale value of luxury goods weakens, the appeal of brand-name items fades rapidly.
Liu Yu, who works in Hangzhou recycling second-hand luxury goods and supplies them to Taobao merchants, explained that these merchants sell “antique luxury bags” to consumers in smaller cities across China. Most second-hand luxury bags are now priced below 5,000 yuan, with average price drops of 20%.
Prices are low, and consumers are less inclined to trade in their old luxury goods for new ones. With second-hand prices dropping, upgrading to new products has become more expensive, making many consumers opt not to exchange their items at all.
After China lifted pandemic restrictions early last year, consumer enthusiasm spiked briefly, causing a surge in the second-hand luxury market. However, many new players entered the market, leading to oversupply. As prices and sales fell, many second-hand luxury stores closed. “We didn’t stock up much,” said Liu Yu, “But some large merchants hoarded inventory. Once prices dropped, their capital turnover pressure was huge, forcing them to liquidate and close.”
New style
The slump in China’s luxury market is also reflected in Hainan’s duty-free sales figures. Hainan was once a top destination for mainland residents to shop for duty-free luxury goods. However, statistics from Jingjian Think Tank, an industrial and economic research organization, showed that in the first half of this year, duty-free sales in Hainan fell by 29.87% year-on-year. The number of duty-free shoppers decreased by 9.98%, and the total number of items purchased fell by 35.94%.
“The fact that the decline in shopping trips is smaller than the drop in spending shows that per capita consumption has fallen sharply,” explained Jingjian Think Tank founder Zhou Mingqi.
Zhou predicted that China’s luxury market will continue to shrink. “For the middle class, luxury goods were once a symbol of wealth and status. But during an economic downturn, they are the first things to be abandoned.”
Class divisions
Ai Min also observed that class divisions have become more pronounced since the pandemic. The super wealthy have been largely unaffected, and many have even accumulated more wealth. Meanwhile, the middle class faces falling property values, job insecurity, and shrinking incomes, unsure of when they’ll emerge from this economic winter.
After leaving the financial industry, Ai Min has maintained relationships with her former colleagues and still works with clients in the financial sector. She has noticed that this year, it’s rare to see anyone carrying new status symbol objects. “When I visit investment banks or attend board meetings, everyone’s style has changed. You rarely see new luxury bags anymore.”
For the middle class, luxury goods were once a symbol of wealth and status.
While there are still people in the financial industry earning millions a year, bonuses and other additional income have dramatically shrunk. Many organizations are struggling due to policy changes, and the threat of layoffs looms over everyone. Ai Min had an opportunity to re-enter the financial sector last year, but her friends discouraged her due to the growing instability in the industry and the sharp decline in income.
Social attitudes have also shifted. Where people once considered job-hopping for promotions and raises, now most are focused on holding onto their current jobs as securely as possible.
“The butterfly effect is strong, and everyone is feeling its impact,” Ai Min said. “We often joke that the middle class no longer exists — there are only two groups now: the wealthy and everyone else.”
*Names of interviewees have been changed.
