Luxury market in mainland China to stay flat in 2025

• Lower consumer confidence and rebound in overseas shopping resulted in a 18-20% decline in domestic luxury spending in 2024
• Challenging H1 and improving H2 should result in an overall flat trend in 2025

SHANGHAI - January 21, 2025 - China's luxury market failed to maintain its previous growth trajectory and saw a sharp deceleration that worsened throughout 2024. The market is expected to stay flat in 2025, according to Bain & Company's latest China Luxury Report.

China's luxury market saw an 18-20% year-on-year decline in 2024, reverting to 2020 levels due to low consumer confidence and increased overseas spending as international tourism picks up. The third quarter saw the worst performance, with a slight improvement in Q4, mostly driven by announcements of the forthcoming stimulus measures, and the expected impact on consumption.

"The downturn is primarily driven by lukewarm consumer confidence driven by economic uncertainty and a decline in real estate value, a shift in spending toward overseas markets, and a reluctance to accept frequent price increases by brands without well-justified value propositions," said Bruno Lannes, a Greater China-based senior partner at Bain & Company.

"The market is going through an era of turbulence and uncertainty, where widespread underperformance may become the norm, with only a few brands emerging as winners. Most brands will likely need to focus on footprint consolidation and performance improvement measures instead of expansion and price increase."

All luxury categories faced declines in 2024. The jewelry and watches segment faced the most significant challenges, as consumers are shifting their preferences toward other value-preserving assets and experiences.

Hainan's duty-free market continues to face competition

Hainan's duty-free sales fell by approximately 29% in 2024, influenced by a reduction in both traffic and basket value due to global tourism recovery, particularly to nearby destinations such as Japan and Southeast Asia. It also faced intense competition from domestic e-commerce platforms, especially in the beauty category. The implementation of key policies for the Hainan Free Trade Port is still ongoing and is expected to continue in 2025; at the same time, Hainan will continue to compete with other new downtown duty-free shops and nearby destinations and needs to improve its overall luxury experience for travelers.

Price gap between domestic and other markets was a major factor in the resurgence of overseas luxury spending

The recovery of overseas luxury spending by Chinese tourists has been significant in 2024, where it accounted for 40% of total Chinese luxury spending. Specifically, spending abroad in 2024 reached about 50% of 2019 level in Europe and exceeded 2019 level to around 120% in Asia Pacific. However, the increase in overseas shopping did not offset the decline in onshore sales, resulting in an overall decrease of 7% in total Chinese luxury goods spending.

Pricing disparities between luxury goods in mainland China and other markets, particularly Japan, was a major factor in the resurgence of overseas luxury shopping in 2024. A sample analysis of key products across the Chinese mainland, France, and Japan revealed significant price differences across various categories, making luxury shopping abroad even more appealing, especially under favorable exchange rates. At the Yen's lowest point vs. the RMB, the price gap compared to domestic prices reached as much as 30%.

Historically, in response to this trend, some brands have implemented a global pricing strategy to offset most of the exchange rate fluctuations. This year, other brands addressed these price disparities by implementing purchase limits in stores and aligning new product prices globally (in the fourth quarter). Ensuring consistency in global pricing and swift reactivity should be a top priority for luxury leadership teams in this turbulent macro environment, according to the report.

Daigou activities could undermine revenue potential and brand equity

Ongoing government and brand actions against Daigou trading, as well as a shift in tourism flows towards Japan due to favorable exchange rates, have caused South Korean duty-free sales to decline by 3% year-on-year, with an average basket dropping by around 40%.

According to brands tracked by Re-hub, the overall grey market grew by approximately 5% in 2024. Favorable exchange rates, pricing discount, and promotion mechanism, have reignited the potential for small scale Daigou operations, however, the main source of supply is likely from large scale or professional Daigou that benefit from substantial pricing advantages through wholesale distribution channels.

In the fashion and leather goods categories, Daigou revenues as a share of official sales in mainland China could vary between 15-25% and 60-70% or more, depending on the brands' size and control on their wholesale channels. Notably, discounts for the top 50 products tracked by Re-hub on Daigou platforms have deepened by approximately 8 percentage points in 2024. This trend raises concerns that the grey market will continue to undermine revenue potential and brand equity in the Chinese mainland.

To counter this trend, Bain advices brands to prioritize their strategies against Daigou operations in 2025 and beyond. Business operations in mainland China need to collaborate closely with the global network to actively manage risks associated with Daigou. This can be achieved by optimizing wholesale operations worldwide, harmonizing price gaps, and focusing on enhancing customer relationship management, aftersales services, and overall client experience in the Chinese mainland.

"Following a turbulent 2024, we expect China's luxury market to continue its downward trend through the first half of 2025, with a cautiously optimistic outlook emerging in the latter half of the year, resulting in an overall flattish performance for the whole year," said Weiwei Xing, a Greater China-based partner at Bain & Company.

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Media contact:

Ann Lee - [email protected]

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