Why China’s Luxury Boom Is Over

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The global luxury market has boomed over the last two decades. Nobody seemed safe from the glitz and influence of runway trends—well, most of them. Shoppers helped the sector almost triple in value during this time, but recently, things haven't been looking so rosy.

Take this site in Beijing. It was supposed to be the city's hottest new destination for European high fashion. Instead, it has become symbolic of an unfashionable new trend. China is experiencing something unprecedented—an economic slowdown that makes it impossible to sustain the same level of growth. According to analysts, many believe this marks the end of China's luxury boom.

The Chinese market has been one of the primary growth engines for the world's luxury industry, with sales swelling into the tens of billions of dollars. In 2023, Asia's share of global luxury revenue was larger than North America's and Western Europe's combined. However, the pandemic significantly influenced this trend.

In 2019, about two-thirds of all luxury goods bought by Chinese shoppers were purchased outside China in travel hotspots like London and Paris. When COVID-19 closed borders, much of that spending shifted inside China, leading to a surge in luxury sales from 2020 through 2023. This shift made the luxury industry even more dependent on the Chinese economy, which is now showing signs of instability.

As a result, the global luxury market has begun to slow down. Over the past two years, about 50 million people have either opted out or been forced out of the luxury market. European luxury brands, including LVMH, Kering (which owns Gucci), Moncler, and Burberry, collectively lost hundreds of billions of dollars in market value in 2024. LVMH, the world's biggest luxury brand, recorded its worst annual performance since the global financial crisis.

The most direct reason for this decline is China's economic slowdown, largely triggered by the property market slump. Chinese consumers have long viewed real estate as a vehicle for wealth creation, but the recent crisis has wiped out a significant portion of the middle class’s household wealth.

Another major factor is China’s high youth unemployment rates. Young professionals have been key drivers of luxury market growth, with more than half of China’s wealthiest shoppers in recent years born after 1990. However, their rising unemployment rate, which is significantly higher than the national average, has made them more cautious about spending on high-end goods.

One example of this shift is seen through Zhulin Chen, a former JPMorgan employee who built an influential following on Chinese social media, blogging about fashion and lifestyle. By 2019, she had leveraged her online presence to launch her own business in e-commerce and live-streamed luxury sales. However, she noticed a growing fatigue among consumers, who began realizing that excessive purchases did not lead to greater happiness.

A new trend has emerged among young Chinese consumers—moving away from material possessions and toward experiences. Many now prioritize mental health, self-exploration, and personal well-being over luxury goods. Chen adapted to this shift by transforming her business model, focusing on wellness-related workshops, events, and retreats.

This changing consumer behavior has benefited companies in different sectors. Brands like Lululemon and Arc'teryx, which focus on athleisure and wellness, have seen their sales surge in China. Meanwhile, the rise of high-quality knockoffs, or "dupes," has further weakened demand for luxury brands. Many consumers prefer dupes that offer the same look without the high price tag or flashy logos, aligning with a growing desire for understated consumption.

Beyond economic factors, government policy has also played a role. President Xi Jinping’s push for "common prosperity" aims to reduce wealth disparities, discouraging overt displays of wealth. This has deterred many affluent Chinese from flaunting their wealth through luxury purchases, further dampening the sector’s growth.

In response, luxury brands are shifting their focus to their most exclusive clients. Companies are targeting their wealthiest customers by hosting high-profile events such as exhibitions, fashion shows, and even concerts to attract younger affluent consumers.

For now, China's era of extraordinary luxury growth appears to be ending. The unfinished flagship stores stand as monuments to this new reality. Luxury sales in China are expected to remain depressed into 2025, prompting companies like LVMH to look toward new markets, including India, the Middle East, and Southeast Asia, in hopes of offsetting the losses.