China’s luxury market is undergoing a significant transformation as domestic brands expand rapidly despite an overall decline in consumer spending on luxury goods. While international luxury groups such as Kering, Hermès, and LVMH continue to face falling sales in the region, several Chinese luxury companies are growing strongly, signaling a possible shift in market dynamics.
In recent quarterly reports, European luxury conglomerates have cited weak demand from China as a key factor behind disappointing financial results. Kering, the parent company of Gucci, reported an 8 percent year-on-year decrease in retail revenue across the Asia-Pacific region during the third quarter, triggering a decline in its stock price by more than 15 percent. LVMH also faced challenges, with sales in Asia (excluding Japan) dropping 5 percent after adjusting for currency fluctuations. Even Hermès, known for its affluent clientele less affected by economic cycles, described the Chinese market conditions as “very difficult.”
Outside overall market weakness, macroeconomic factors have weighed heavily on China’s personal luxury segment, which Bain & Company estimates contracted by approximately 19 percent in 2024 and about 5 percent the previous year. However, this contraction is not affecting all players equally. Several Chinese luxury brands are bucking the trend with impressive growth and strong consumer interest.
Local handbag companies, tracked by Bernstein on China’s leading e-commerce platform, have seen annual sales growth of roughly 51 percent since 2021. The uptrend extends to other luxury categories, including fine jewelry. Laopu Gold, a prominent domestic jewelry brand, more than tripled its sales last year and posted an additional 61 percent increase in the first half of 2024. The company maintains a healthy gross margin above 40 percent, underscoring its premium positioning.
Despite strong financial performance, Laopu Gold’s valuation remains modest compared to European counterparts, trading at about six times projected forward earnings. Investors remain cautious, uncertain whether the rise of Chinese luxury brands represents a sustainable shift or a temporary development. There is skepticism regarding whether these homegrown brands will ultimately gain significant recognition on the global stage.
The contrasting fortunes of China-focused European luxury brands draw a parallel with the automotive sector’s recent experience. Volvo Cars saw shares drop by as much as 30 percent following a sharp decline in Chinese sales, highlighting the risks foreign companies face in the shifting domestic landscape. This serves as a cautionary example for luxury conglomerates as they confront evolving consumer preferences and intensifying competition from domestic brands in China’s dynamic luxury market.