China's luxury market: Challenges from last year to continue into 2025, ‘flattish’ performance forecasted

A new report by Bain & Company has suggested that “China’s luxury market failed to maintain its previous growth trajectory” throughout 2024, after it experienced an "unexpected and sharp deceleration that worsened throughout the year”. In the report, entitled ‘2024 China Luxury Goods Market’, it was stated that the mainland luxury market saw a decline of 18 to 20 percent during 2024, reverting back to 2020 levels due to what Bain recognised as “low consumer confidence and increased overseas spending”.

A drop in growth was seen across all luxury segments, with the lowest being recorded for beauty, which saw a decline of just 10 percent, compared to an increase of 8 percent in the year prior. The seasonal nature of fashion, for which growth dropped 15 to 20 percent, as compared to a 15 to 20 percent increase in 2023, was cited to be among the category’s strong points, contrasting leather goods, which experienced a growth decline of 20 to 25 percent, caused by “limited investment into seasonal items and higher unit prices”. Jewellery and watches, reporting declines of 25 to 30 percent and 28 to 33 percent, respectively, faced the most challenges, as consumers were said to have shifted preferences towards other value-preserving assets.

There was also a significant decline recorded in the duty-free sales of the Hainan province, where growth fell 29 percent. This reflected a broader consumption slowdown in China, a 15 percent year-on-year drop in traffic, and the recovery of global tourism, with consumers instead favouring Japan and Southeast Asia as holiday destinations. Price disparities between these markets and China played a crucial role here, and could help boost the anticipated growth of overseas travel and consumption as a whole, Bain said. This does not include South Korea, however, as duty-free sales in the region are projected to decline by 3 percent in comparison to 2023 figures, despite a 60 percent recovery in international travelers.

‘Lukewarm consumer confidence’ influences negative growth trajectory

In China, an inability to maintain previous growth trajectory was said to have been primarily driven by a “lukewarm consumer confidence” as a result of economic uncertainty, a decline in real estate value, a shift in spending towards overseas markets and price increases by brands. It is such that the market is anticipated to continue this downward trend through the first half of 2025, with only a “cautiously optimistic outlook” for the second half, resulting in what will be a “flattish performance” overall.

Bain said that brands needed to prioritise enhancing desirability and delivering value through events, product innovations and experiences. It also noted that China should seek global collaboration on pricing, particularly in the way of global wholesale operations. The report highlighted both challenges and opportunities in macroeconomic conditions and demographic shifts, especially among younger generations, for which a deceleration in luxury shopping has been seen in comparison to their predecessors. Bain said a reduction in purchasing power accelerated by high unemployment rates has influenced this, while, alternatively, those with a higher purchasing power were diversifying their brand preferences.

The report concluded: “Ultimately, as China still possesses the largest addressable luxury population in the long term and given the strong signals from recent stimulus policies, the future of luxury in the country remains promising. Brands that seize this period as an opportunity to reflect, refocus, and reset are more likely to navigate through turbulence swiftly and regain growth momentum.”