China’s luxury market has long been the key driver of growth for global brands. However, recent trends indicate luxury consumption is facing headwinds, causing concern for brands that rely on Chinese consumers. The combination of a weak macroeconomic environment, declining consumer confidence, and changing purchasing behaviors is reshaping how Chinese consumers engage with luxury goods.
At Simon-Kucher, we understand these challenges and believe brands can still succeed by making thoughtful adjustments. This article breaks down the key issues and opportunities that global luxury brands need to consider to stay competitive.
The current state of China’s luxury goods market
China’s economic growth has slowed to below five percent, a noticeable drop from the double-digit growth it once experienced. High unemployment, declining foreign investment, and a struggling real estate sector have contributed to low consumer confidence. This has resulted in a slowdown in year-on-year sales growth across the luxury goods industry.
But despite the overall weak economy, a few sectors still manage to perform well. For example, some Chinese cosmetics companies continued to achieve double-digit growth in the first half of 2024. This highlights the importance of targeting the right opportunities within China’s middle class and beyond.
How Chinese luxury consumer behavior is changing
Polarized consumer behaviors
We see two distinct types of luxury consumers emerging in China. The first group, particularly those seeking high-end luxury, continues to purchase with more discretion but remains committed to premium brands. The second group, focused more on accessible luxury, is trading down, demonstrating heightened price sensitivity and opting for lower-priced alternatives.
This means there’s a growing need to address both ends of the spectrum. Brands may need to offer more accessible products to engage price-sensitive consumers while maintaining high-end offerings for those still willing to invest in premium goods.
Our recent article on consumer polarization provides detailed strategies for brand manufacturers looking to maintain profitability and market relevance. Read it here.
Growing importance of local
Localization is crucial in the current climate. Chinese consumers are turning to local brands - not only for affordability but also for products that feel more aligned with their cultural identity. International brands need to adapt by offering products and marketing that resonate with local tastes and values.
This doesn’t mean abandoning your brand’s core identity. Instead, it means finding ways to make your brand feel more “at home” in China. Whether it’s through localized branding, product lines, or customer experiences, the goal is to ensure your offering feels relevant and desirable to Chinese consumers.
Shift to Tier 2 and Tier 3 cities
While the major cities like Beijing and Shanghai are still key markets for luxury brands, we see increasing potential in Tier 2 and Tier 3 cities. These regions are experiencing growth, and consumers here are becoming more affluent. However, their preferences differ from those in larger cities. It’s important to tailor your approach accordingly.
To capture demand in these regions, rethink your channel strategy. Digital marketing via platforms like Douyin (TikTok) is essential for reaching these consumers. You also need to provide a seamless omnichannel experience, allowing customers to move effortlessly between online and offline shopping.
Discounting and stock issues
One of the most pressing challenges facing luxury brands in China is the rampant discounting by retailers. Many wholesalers and resellers, particularly those stocking high-end luxury items like bags and ready-to-wear, often find themselves sitting on excess inventory. When demand doesn’t meet expectations, they resort to heavy discounts to offload the surplus. We've seen up to 40% on brands like Burberry.
When consumers associate luxury items with frequent discounts, your brand’s premium image gets eroded. To combat this, you need to implement tighter controls on stock levels and distribution channels. One effective solution is imposing stock quotas on retailers, limiting how much inventory they can purchase. This helps prevent overstocking and reduces the likelihood of markdowns.
You can also reserve your most luxurious assortments for high-end retailers. This strategy ensures premium items remain exclusive, preventing widespread discounting and maintaining your brand’s luxury appeal.
The rise of “luxury shame”
Another trend impacting luxury consumption is what we call “luxury shame.” Many affluent Chinese consumers are becoming more discreet in their purchasing behavior. They’re moving away from highly visible luxury goods like watches and jewelry in favor of less flamboyant items. This shift is not only about saving money but also about avoiding the social stigma associated with overt displays of wealth.
Rethink your product mix in China. For example, you may decide to focus on luxury services or items that feel exclusive but are less immediately recognizable. Offering more understated items can help cater to consumers who want to buy luxury without attracting too much attention.
Key questions for your luxury strategy
China’s luxury market is undergoing a significant transformation, but this doesn’t mean global brands can’t thrive. To navigate China’s luxury goods market, brands need a clear, customer-centric strategy. At Simon-Kucher, we help you ask the right questions to ensure your approach resonates with Chinese consumers and drives growth. Key questions for leadership include:
Where to play?
- Who are the target consumers that will fuel future growth, and where are they located?
- Where will future demand come from, and how can you ensure the right product-market fit?
- What opportunities exist to differentiate from competitors and align with Chinese market trends?
How to win?
- How can you build a customer-centric business, including your brand, products, and services?
- What business models and tactics will help you land and expand across various channels and regions?
- What value proposition adjustments do you need to make to grow in target or prospect segments?
We've developed practical quick wins that address both the "where to play" and "how to win" dimensions, ensuring your business stays relevant in China’s shifting market. By answering these questions, we help you build a tailored strategy that adapts to the unique behaviors and preferences of Chinese consumers. Contact our experts to start the discussion today.
Navigate the future of luxury with Simon-Kucher
At Simon-Kucher, our expertise is grounded in deep local knowledge and global insight. We have local experts on the ground in China who truly understand the market, from consumer behaviors to regional nuances. This local presence allows us to tailor strategies that resonate with Chinese consumers and deliver real results.
Our pragmatic approach sets us apart. We rely on data-driven insights and market analytics to identify new opportunities for growth, whether it’s finding the right channels to expand into or fine-tuning your product offerings. We don’t make assumptions—we base our recommendations on hard data and what’s happening in the market right now.
With our global footprint, we bring a broad perspective that allows us to see the bigger picture. We know what works in other markets and how to apply those learnings effectively in China. This global reach, combined with our local expertise, ensures we help you make confident, informed decisions that lead to long-term success in China’s luxury goods industry.
