Opinion: The Luxury Chinese Shopper Looks Different Now

China’s luxury-spending slump has comfortably turned the corner, but what’s emerged looks markedly different to the pre-pandemic heyday. Brands hoping to capitalise on the recovery will need to adjust to a new set of consumer priorities.

First, the good news. The world’s second-largest high-end retail market after the US is finally expanding again. Although it tripled in size in the five years to 2021, the sector shrank a year later as a result of the sweeping lockdowns that brought major cities like Shanghai to a standstill — and again in 2024 after a property rout sapped consumer confidence, according to Daxue Consulting. However, strong earnings from Cie Financiere Richemont SA to Ralph Lauren Corp. suggest a rebound that took hold in the final months of last year has gained momentum. McKinsey & Co. reckons China’s luxury industry will grow by as much as 6 percent a year to 2030.

European and American luxury houses and their investors are counting on Chinese consumers’ renewed appetites, but they need to manage their expectations. Although the pace of growth may be faster than other regions, it pales in comparison with the double-digit rates of the boom years.

The reality is that Chinese shoppers’ spending power on high-end products has peaked, at least for now. They’re not the force they were in 2019, when Bain & Co. estimated that China accounted for 90 percent of the growth in the luxury industry globally. As a result, they will also struggle to make up for the impact of the Iran war on the important Middle Eastern markets, where luxury sales have been hammered.

Structural changes to the economy make a return to those days unlikely. Beijing continues to prioritise export-led growth over policies that would meaningfully boost personal consumption, while a tough job market is putting additional pressure on younger shoppers. These factors have reshaped consumer behavior in two important and potentially lasting ways.

For one, the relationship between China’s rising middle class and luxury has changed. During the gogo years, consumers stretched themselves financially to buy entry-level products such as leather handbags from high-end labels. But shoppers are now more price sensitive and increasingly choosing higher-value-for-money products. Nowhere is this more apparent than in the growing preference for prestige beauty, which is more affordable than traditional luxury staples such as leather goods. The latest earnings results bear this out.

L’Oréal SA sales in North Asia were up 4.5 percent in its most recent quarter, a marked improvement from last year’s flat results. The performance was driven by 10 percent growth of the Luxe division — which includes Lancôme, Kiehl’s and Helena Rubenstein — in China, chief executive officer Nicolas Hieronimus said in a July earnings call. The mass market, on the other hand, had “turned negative,” he added.

It’s a similar picture at Estée Lauder Cos. High single-digit growth in the quarter ended March was led by prestige brands like La Mer and Estée Lauder Supreme. Beiersdorf AG said there was “strong momentum” in China for the La Prairie line. By contrast, Chinese demand was flat at LVMH Moët Hennessy Louis Vuitton SE, even as its beauty emporium Sephora did well.

It all tallies with the idea that younger consumers have become more cautious and selective with their spending. A survey from consultancy Oliver Wyman and the Tax Free ​World Association found Chinese travelers expressed a much greater propensity to buy beauty and luxury apparel rather than higher-ticket items such as watches and leather goods.

Secondly, fewer Chinese are venturing overseas. Compared with 2019, when the majority of luxury purchases were made abroad, most buying now happens domestically.

Households are still bruised by the five-year-old housing slump, which will take time to resolve. This matters enormously in a country where roughly 70 percent of wealth is tied up in property. Last month, the authorities officially designated real estate as “durable goods” in the same category as automobiles and air-conditioners. It was an honest assessment of its diminished place in the Chinese economy: No longer a seemingly inexhaustible store of net worth, but an asset that depreciates with age.

For years, high-end retailers could count on China to deliver extraordinary growth almost regardless of what they sold. That era is over. The recovery taking shape is more measured and discerning. The winners will be ones that recognise that the old Chinese luxury shopper isn’t coming back.

By Juliana Liu