China’s Luxury Market Faces Setback Amid Trade Tensions and Property Slump
Spending on luxury goods in China continues to take a hit as economic uncertainties, falling property prices, and the ongoing U.S.–China trade war weigh heavily on consumer sentiment, according to analysts.
The world’s top luxury brands—including LVMH, Kering, and Hermès—are feeling the impact. A sustained property market downturn and concerns over economic growth are prompting Chinese consumers to scale back, particularly on high-end items. Official data shows that new-home prices in China fell by 0.1% in March—marking the 22nd consecutive monthly decline.
Analysts say the trade war is amplifying the effects of an already sluggish economy. “Luxury spending in China dropped by 18–20% last year, and we don’t see signs of a major rebound yet,” said a Bain & Co report from January.
LVMH Takes a Hit
LVMH, the parent company of Louis Vuitton and Christian Dior, reported a 3% year-on-year drop in first-quarter sales to €20.3 billion (US$23 billion). This decline saw the French conglomerate lose its title as Europe’s largest luxury group to rival Hermès. The steepest decline came in its wine and spirits division, down 9%, partly due to weakened demand in China and the U.S.
“The start of the year has been weak for LVMH with Chinese consumers,” noted Jelena Sokolova, a senior equity analyst at Morningstar. “Falling property prices—a key factor in luxury spending—along with less overseas travel, are playing a major role.”
Hermès, Kering, and Others Brace for Headwinds
Paris-based Hermès reported a modest 1% year-on-year increase in Asian sales (excluding Japan), as declining foot traffic in Greater China dragged on performance. Globally, Hermès’ sales rose by 7% to €4.1 billion.
Meanwhile, industry players like Kering (owner of Gucci), Prada, and Richemont (Cartier’s parent company) are set to release their first-quarter earnings in the coming weeks, with expectations tempered by broader market conditions.
According to analysts, another challenge is the growing trend of Chinese luxury consumers shopping abroad—motivated by better pricing and fewer trade-related complications. “We expect a continued shift in luxury consumption from mainland China to overseas markets, especially those less affected by tariffs,” said Richard Lin, chief consumer analyst at SPDB International.
American brands such as Tiffany and Coach are likely to be “definitely affected,” Lin added. “Even European companies, though less exposed to direct U.S.–China tariffs, may still face pressure to raise prices.”
Some Bright Spots Emerge
Despite the headwinds, some brands are bucking the trend. Italian outerwear brand Moncler posted 6% sales growth in Asia in the last quarter, following strong double-digit growth in China in 2023. Luxury fashion house Brunello Cucinelli also reported double-digit growth in China, driven by demand for high-end prêt-à-porter clothing.
In contrast to falling discretionary spending, Chinese consumers are flocking to gold as a safe-haven investment amid global uncertainty. Sales of gold, silver, and jewelry rose 10% in the first quarter—far outpacing last year’s 6.9% growth. This surge has significantly boosted local brand Laopu Gold, which posted a staggering 250-fold increase in net profit in 2024, with its stock price rocketing over 1,875% since its Hong Kong IPO.
A Fragile Outlook
While China’s GDP grew by a stronger-than-expected 5.4% in the first quarter and retail sales were up 5.9%, the outlook for luxury remains fragile. Analysts warn that unless property markets stabilize and trade tensions ease, luxury brands may continue to face an uphill battle in the world’s second-largest market.
