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Key takeaways:
- Lunar New Year sees likely rises in luxury consumer spending, in line with Q1’s holiday season. However, spend on gifting is expected to remain lower than that of 2023 — brands should look to luxury experiences as an antidote.
- Luxury spend continues to slow in Q4 as a result of low consumer confidence in the economy, despite some signs of market recovery.
- While Chanel continues to be China’s most-purchased luxury brand, Louis Vuitton’s focus on the Chinese consumer defies trends in reduced spending.
- International and domestic travel is on the up over the Lunar New Year, with anticipated spend stronger than last’s.
Luxury’s promise-hub China is facing a deceleration: the last quarter of 2023 saw a growing number of consumers spending in the lower tier, and contrary to Q3 expectations of a middle-tier influx, more than half (52 per cent) of luxury consumers now spend below RMB 22,499 (£2,498), up from 49 per cent in the last quarter. Those spenders in the higher tier in Q3 have entered the lower-spending tier in Q4, with nominal change across the middle tier. “The fact that consumers are trading down brings some caution around the current state of the luxury consumers in Mainland China,” says Carole Madjo, head of European luxury goods research at Barclays.
This increasingly conservative spending behaviour offers a contrast to China’s improved economic performance. In November, the IMF projected the country’s economic growth to rise from 5 per cent to 5.4 per cent, in line with the strengthening Chinese yuan. While growth has remained consistent with the government’s 2023 targets, macroeconomic challenges like restrained export demands and housing market weaknesses are contributing to a 2024 forecast of slower GDP growth. And, despite upgraded economic projections, 49 per cent of consumers surveyed by Vogue Business continue to express concerns about the economy.
Nonetheless, middle-tier spend should see a recovery in Q1, thanks to the Lunar New Year on 10 February, with lower-tier spending projected to decrease by 14 percentage points, 9 per cent of which are due to shift to the middle tier. Based on these forecasts, Q1’s middle-tier spending is estimated to surpass its peak in Q2 2023, jumping from 35 per cent to 40 per cent. Meanwhile, projected higher-tier spending is set to remain at its peak but with slower growth.
This data pulls into focus the post-lockdown spend rebound of Q2. While declines in Q3 and the latest quarter — almost a year on from the relaxation of Covid measures — signal an unsettling contrast for luxury brands, current spending trends may be influenced not only by macroeconomic factors, but a normalisation of spend.
Jewellery sparkle dims for China’s top spenders
The downward trend of Q3 continues into Q4, showing a further reduction of overall spend at top luxury brands. Despite this, Chanel continues its reign as the most-shopped brand in Q4. Burberry rises three positions to become the 11th most-purchased brand — one of few brands to witness a rise from Q3 to Q4, alongside Louis Vuitton, which overtook Saint Laurent and Gucci to attain third place. This brand repositioning reflects the mixed nature of Q3 financial results released by luxury conglomerates LVMH and Kering.
Both Burberry and Louis Vuitton are benefiting from new creative directors, with Daniel Lee and Pharrell Williams both proving successful in the Chinese market. Burberry’s rebrand, which hones in on its British heritage, has seen purchases among younger consumers (under 35s) rise at a faster rate than their older counterparts (over 35s) in 2023. The maison also released a Lunar New Year collection that pays homage to Chinese culture.
While Louis Vuitton is one of many luxury brands to hold repeat shows in China, joining the likes of Dior and Chanel, Williams’s follow-through onto Xiaohongshu and Douyin social media platforms, additional marketing campaigns and personal visits to Mainland China suggest that as consumers have less spending power, they’re looking to be more thoughtful about the brands that they are purchasing from.
Meanwhile, Louis Vuitton is focusing on travel collections and destination locations to capture the national mood across experience and travel. The brand’s rise of 8 per cent between Q1 and Q4 makes a compelling case for more tailored and meaningful investments into international markets, as well as utilising a physical and digital presence that defies spend declines.
Luxury consumers continue to purchase jewellery at a higher rate than other categories, despite the declines in hard luxury this quarter. Handbags, meanwhile, displayed continued resilience in Q4 as a penchant for the category returns, climbing the ranks to the third most-purchased luxury item at 33 per cent. This could continue into Q1, where 32 per cent of consumers are expected to purchase from the category.
Lunar New Year gifting faces downgraded spending
Looking towards the Lunar New Year, 75 per cent of consumers are planning to spend over RMB 2,500 (£276) on gifts this holiday season, with close to a third (32 per cent) of shoppers hoping to allocate spending on their families. Self-gifting is projected to be strong: 28 per cent expect to spend the majority on themselves, with higher-income consumers (earning more than RMB 750,000) planning to self-gift at double the rate (41 per cent) of that earning below that threshold (at 20 per cent).
Gifting in 2023 Q1 painted a more optimistic picture of consumer spending than estimates for 2024’s first quarter. Only 19 per cent of survey participants intend to make big purchases that exceed RMB 15,000 (£1,656) — a significant decline from the 35 per cent observed in 2023. With reduced budgets and increasing travel intentions, gifting spend is more likely to be reallocated for experiences, in comparison to last year, due to the lack of Covid constraints.
Big declines are expected in the purchase frequency of larger ticket items, including hard luxury goods such as jewellery and watches, as well as higher-cost fashion items like footwear and outerwear (a 10, 7, 7 and 5 percentage point decrease, respectively).
Almost half (49 per cent) of China’s luxury consumers are concerned about the economy, and close to a quarter (25 per cent) are concerned about losing their jobs, according to our survey. Therefore, tighter gifting budgets are unsurprising. Nonetheless, the buying period for the celebration is short-lived — either right before or during the holiday for over half of consumers — and, while luxury consumers are spending less overall, they’re continuing to purchase high-end pieces throughout the year for themselves.
Regarding this high-ticket decline, beauty categories storm ahead in expected gifting for 2024, acting as an accessible entry point into luxury. Consequently, China’s love for luxury and niche fragrances isn’t going anywhere, with personal fragrance leading the pack at 39 per cent, while the 5 per cent uplift in home fragrances, compared to last Lunar New Year, indicates a new trend in luxury gifting for 2024 driven by younger millennials in the 25 to 34 age range.
Experiences lead domestic and international travel
Optimism for fashion gifting may be down, but travel is witnessing a revival. The relaxation of China’s borders at the beginning of 2023 has meant that 91 per cent of consumers are looking to travel this Lunar New Year in comparison to 66 per cent the year prior. “The results confirm our view that Chinese consumers are still eager to travel despite the macro headwinds,” says Madjo.
Despite China’s luxury shoppers being drawn to international destinations, domestic travel retains its popularity, counting for the majority of expected Chinese travel. Still, the uplift in travel both across (42 per cent) and outside (37 per cent) of Asia has been considerable despite post-Covid visa restrictions limiting visits to Europe and the US.
Focusing on consumer movement within Asia, 54 per cent of respondents expect to purchase luxury items in Chinese territories such as Hong Kong and Macau over the Lunar New Year, while 26 per cent expect to spend in Japan or Korea.
The trend towards experiences is further seen in how consumers spend their money when travelling. Luxury hotels (79 per cent), fine dining (69 per cent) and luxury experiences (66 per cent) rank the highest in consumer budgets.
It’s apparent that luxury consumers now prefer investing in experiences, but this shift can open up additional opportunities for brands to reconnect with the Gen Z aspirational shopper amid the slowdown in goods spending. However, over three-quarters of Gen Z consumers drove lower-tier spending this quarter and placed international travel as the second most significant expenditure in the upcoming year. Brands may find it beneficial to tailor experiential strategies to the interest of young luxury consumers ahead of their future spend on indulgences.
Boilerplate: *Vogue Business surveyed 532 luxury consumers in China, aged 18-64 in March 2023, 502 respondents in June 2023, 506 respondents in September 2023 and 506 respondents in December 2023. Consumers were split by natural fallout across gender and age group (18 -24, 25-34, 35-44, 45-54 and 55-64). Respondents were luxury shoppers with a minimum spend of RMB 1,000 ($145) on a single item or a total spend of RMB 8,500 ($1,236) over the last 12 months. Respondents were asked about their luxury shopping habits, spending and travel, as well as planned spending activity over the upcoming Lunar New Year. This is the fourth edition of an ongoing quarterly study of Chinese luxury consumers in partnership with Barclays Research.
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