Luxury Brands Hit by China’s Economic Slowdown, Wealth Crackdown

China’s economic slowdown and a crackdown by Beijing on displays of wealth are impacting top luxury brands. LVMH reported a 14% drop in sales in Asia, including China but not Japan, in the three months to June, worsening from a 6% decline in the first quarter.

The Paris-based firm is not alone, as many of its competitors are also seeing sales slow in the world’s second-largest economy. Chinese shoppers are cutting back on expensive purchases, and government censors have shut down social media accounts of influencers flaunting luxury goods.

LVMH, the world’s largest luxury group, also reported that its overall revenue growth had slowed to 1% for the period. However, the group’s chairman and chief executive Bernard Arnault remained cautiously optimistic: “The results for the first half of the year reflect LVMH’s remarkable resilience… in a climate of economic and geopolitical uncertainty. While remaining vigilant in the current context, the Group approaches the second half of the year with confidence,” he told investors.

Shares in the company – home to 75 high-end brands including Louis Vuitton, Dior, and Tiffany & Co – have fallen by almost 20% over the last year. LVMH is not the only big name feeling the slowdown. Burberry reported a more than 20% drop in sales in mainland China, compared to a year earlier. Swatch Group, which owns Blancpain, Longines, and Omega, saw a 14.4% decline in sales for the first six months of 2024. Richemont, which owns Cartier, reported a 27% year-on-year drop in sales in China, Hong Kong, and Macau for the quarter ending on 30 June. Hugo Boss downgraded its sales forecasts for the year due to weak consumer demand in markets like China and the UK.

Other major luxury brands, including Hermes and Gucci-owner Kering, are due to report their latest financial results this week. Recent data from China suggests the economy is still struggling to recover from the pandemic downturn, with second-quarter growth and June retail sales below expectations.

Flaunting luxury brands online has come under scrutiny from Chinese authorities. In May, state-controlled newspaper Global Times reported that an internet celebrity, Wanghongquanxing, was banned from social media “amid a crackdown on online wealth show-offs.” His account on Douyin, China’s equivalent of TikTok, had more than four million followers. Several other popular influencers have also seen their accounts deleted in a campaign aimed at banning “vulgar” and deliberately ostentatious content.

NNEOMA UDENSI

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