[CHRONICLE] The new challenges of luxury in a changing world: Chinese slowdown, strategic errors and new adaptations

The luxury goods industry, particularly in the leather goods, watchmaking and jewelry segments, is going through a complex period marked by significant economic and financial challenges. The trade dispute and economic slowdown in China have had a particular impact on this sector, which has traditionally been supported by a wealthy Chinese clientele.

 

China, which until recently accounted for a substantial share of global sales of luxury goods, is experiencing a notable slowdown. This turnaround is attributed to various factors, including the real estate crisis and anti-corruption policies discouraging ostentatious displays of wealth. As a result, big names in luxury goods, such as Burberry and Kering, are experiencing significant declines in sales in this key market.

 

Strategy errors

 

Strategic errors have been made by some major luxury manufacturers. Faced with slowing demand in China and the United States and declining sales volumes, several manufacturers have raised their product prices.

 

This strategy, known as “premiumization”, has been used by Hermès, which raised its prices by around 9% at the beginning of the year. However, this strategy has proven ineffective for more affordable brands such as Gucci (a subsidiary of Kering) and Burberry, which have seen a significant drop in sales.

 

The observed trend has led to a decrease in the customer base, as highlighted by the Bain & Company study, which estimated that 50 million customers have been lost since 2022. The high prices charged by leather goods brands (3,000 euros for a cotton Dior bag, more than 5,000 euros for a Hermes tote bag, etc.) have deterred members of Generation Z, i.e. people under the age of 35, whom they had managed to attract, particularly in China.

 

Faced with unemployment, they are now more thrifty. 40% of luxury sector customers consider the prices charged to be excessive. It is therefore imperative that brands re-examine their offerings.

 

Adaptation strategies in the face of a changing landscape

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Featured photo: Unsplash

Picture of Antoine Fraysse-Soulier
Antoine Fraysse-Soulier
Antoine Fraysse-Soulier has been responsible for market analysis at eToro for the past 4 years. He holds a Master's degree in International Finance from ESLSCA Business School Paris, and has over 10 years' experience in market and technical analysis, including 3 as a portfolio manager. He is also a columnist on BFM Business.
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