Forget the China gloom — luxury bosses say shoppers are back
News Summary
Luxury brand executives report that Chinese shoppers are returning to the market. Top executives from Prada, Coach, EssilorLuxottica, and Value Retail told CNBC they are seeing demand in China stabilize, even as the broader luxury sector continues to report softer spending among Chinese consumers. Prada CFO Andrea Bonini expressed "cautious optimism," expecting a more "normalized" backdrop by 2026. Coach CEO Todd Khan reported a 20% growth in its China business, sustained for several quarters, attributing it to the brand's appeal to more cautious consumers and its localization efforts. Recent earnings support this view, with Burberry's Greater China sales up 3%, Richemont's sales to Chinese customers "almost flat," and LVMH reporting 1% growth in Q3 with mainland China turning positive. However, JPMorgan analysts warn it's "early to call it a turnaround," noting that some improvement reflects spending repatriation rather than broad acceleration, and China's macro backdrop remains "quite complex." Brands are aggressively localizing to compete with intensifying local labels and adapt to social media platforms. Despite a slow recovery, luxury bosses agree China is stabilizing rather than fully rebounding, yet the underlying "structural trends" persist.
Background
In 2025, the Chinese economy is contending with multiple challenges, including high youth unemployment, a prolonged property market downturn, and weaker household confidence. These factors have collectively weighed on discretionary spending, particularly affecting the luxury sector, which had previously been on track to become the world's largest during the pandemic but has since slowed sharply. Global luxury brands are actively adapting to shifts in the Chinese market, including evolving consumer behaviors and the rise of domestic labels. To navigate these challenges, many international brands have been compelled to adopt more aggressive localization strategies, such as increasing China-focused marketing, accelerating product cycles, and tailoring designs using local consumer data.
In-Depth AI Insights
What are the true drivers behind luxury brands' claims of "stabilization" in the Chinese market? The narrative of "stabilization" from luxury executives like Prada and Coach may not solely stem from robust organic growth, but rather a combination of the following factors: - Low Base Effect: After months of weakness, or even double-digit declines, any cessation of deterioration or marginal growth appears as "stabilization," especially against a "particularly easy" comparison base. - Repatriation of Spending: Analysts noted that part of the uplift is due to Chinese consumers bringing their luxury spending back to mainland China from overseas, which, while beneficial for domestic sales figures, doesn't signify a broad-based increase in overall purchasing power. - Targeted Positioning and Localization: Brands like Coach, with their "sweet spot" pricing and deep localization efforts (e.g., co-design studios in Wuhan), have successfully appealed to mid-tier or value-conscious luxury buyers when consumers are more cautious. - Adaptive Strategies Bearing Fruit: Aggressive localization efforts in marketing, product design, and social media strategies are starting to yield localized results, helping brands better compete against domestic labels. What are the structural implications of China's macroeconomic challenges for the luxury market? High youth unemployment, a prolonged property downturn, and weak household confidence in China have profound and structural impacts on the luxury market: - Widening Consumption Polarization: Economic uncertainty likely leads to the affluent continuing to purchase high-end luxury for status, while the middle class and "aspirational buyers" may shift towards more value-oriented accessible luxury brands or the secondhand market. - Reinforced "De-logoization" Trend: As consumers become more cautious and rational, the pursuit of overt brand logos may diminish, favoring understated luxury that emphasizes design, quality, and brand heritage. - Accelerated Rise of Domestic Brands: Under macroeconomic pressure, consumers may increasingly support more affordably priced domestic brands with stronger cultural resonance, compelling international brands to accelerate localization to maintain competitiveness. - Shift in Long-Term Growth Model: Luxury brands in China will increasingly rely on deep penetration into niche markets, offering personalized experiences, and continuous innovation, rather than the broad-based expansion driven by overall rapid economic growth seen in the past. How should investors interpret the "cautiously optimistic" stance of luxury brands in the Chinese market? "Cautiously optimistic" is a balanced statement from brands navigating a complex market. Investors should interpret it from several angles: - Discern Individual Stock Performance: Not all luxury brands will equally benefit. Investors should focus on brands capable of deep localization, rapid product innovation cycles, and effective outreach to and satisfaction of specific Chinese consumer segments, especially price-sensitive "aspirational buyers." - Beware of "False Recovery": It may be premature to view current trends as a full rebound. Without fundamental improvements in the macroeconomy, any growth could be fragile and susceptible to external shocks. True recovery requires a general uplift in consumer confidence and purchasing power. - Focus on Profitability, Not Just Sales: Localization and intense competition can drive up marketing and operational costs, potentially eroding profit margins. Investors should analyze whether sales growth is accompanied by healthy profitability. - Rise of the Secondhand Market: As consumers become more discerning, the secondhand luxury market is likely to continue growing, potentially diverting some demand from the primary market while also offering new business model opportunities for brands (e.g., brand authentication, buy-back programs).