China’s luxury goods market is under pressure as its economy faces headwinds and its wealthy turn their backs on flaunting their wealth.
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“This is not to say that people aren’t willing to spend on luxury goods – in fact some major companies are continuing to perform very well in China – but it’s simply part of aspirational consumption as people become more cautious and continue to be more cautious,” Derek Deng, senior partner at Bain & Company, told Squawk Box Asia last month.
“Affluent clients are afraid of being perceived as too flashy or too showy,” Claudia D’Arpizio, partner and global head of fashion and luxury at Bain & Company, told CNBC in a separate interview.
To be clear, the term is not new.
“We call it an embarrassment of luxury. [to] “It’s the same as what happened in the United States in 2008-2009,” D’Arpizio said. “Even people who can afford these products are less willing to buy them. [in order] “It’s about not looking like you’re actually buying or wearing very expensive products.”
Instead, Chinese consumers are increasingly favouring “quiet luxury” styles, investment pieces and “more understated” and discreet luxury items, she added.
China is the world’s second-largest economy and home to more than 98,000 of the world’s ultra-rich, with net worths of over $30 million, second only to the United States.
But the economy has come under pressure since the coronavirus pandemic amid expectations of slowing growth and sluggish consumption.
High youth unemployment and ongoing turmoil in the country’s property market have led some Chinese shoppers to shy away from flashy purchases amid economic uncertainty.
Bain said in the report that while the global personal luxury goods sector is expected to grow modestly by up to 4 percent, or to $420 billion, China’s luxury market is “struggling” and “in general contraction.”
China’s political stance also influences the “luxury shame” felt by Chinese consumers.
“In general, people are being more sensitive at times,” Oliver Wyman president Kenneth Chou told CNBC. “Governments are promoting common prosperity and discouraging any form of money worship.”
First mentioned by Mao Zedong in the 1950s, common prosperity was reintroduced by the Chinese government in 2021 to bring moderate wealth to all people.
China began cracking down on “display of wealth” in May, banning several online influencers known for their lavish lifestyles from Chinese social media sites.
“I think it has a lot to do with the government’s attitude,” D’Arpizio said, adding that the country’s common prosperity campaign is having a psychological effect on Chinese people, with some of its wealthy individuals starting to move money abroad.
In China, a challenging macroeconomic environment, slowing GDP growth and weak consumer confidence have hit consumption, and signs of the so-called “luxury shame” are beginning to emerge.
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“Also, historically, we have seen in other countries that in times of greater economic uncertainty, the wealthier and more affluent become more hesitant to flaunt their wealth in front of the public,” Chow said.
“As a result, we see Chinese consumers becoming more rational overall,” Imke Wouters, a partner at consulting firm Oliver Wyman, told CNBC. “They really want to see the correlation between price and value. They think twice before buying the most expensive things.” [thing]”
Bain’s Deng said Chinese consumers are becoming more “sophisticated” – once willing to pay a premium price for foreign brands, many today buy based on the quality of the product and the value proposition a brand offers.
