China’s luxury market witnessed a considerable decline of 10% in 2022, signaling the end of a five-year stretch of robust growth, as outlined by a report from Bain & Company. This downturn can be attributed to two major factors: Beijing’s zero-COVID policy and the country’s decelerating economy, both of which had ripple effects on consumer spending.
Between 2019 and 2021, the luxury market in China experienced an impressive annual growth rate of 42%. Nevertheless, in 2022, the trajectory took a sharp turn for the worse. Lockdown measures were implemented at the city level, coupled with intensified regulatory actions targeting the property sector. These initiatives led to a surge in unemployment and a decline in consumer confidence. Consequently, the luxury market contracted by 10%, a stark contrast to the growth rate of 1% observed from 2012 to 2016 and the 26% surge in sales from 2016 to 2019.
This downward trend in the luxury market resonated in the financial performances of major luxury goods companies such as LVMH and Salvatore Ferragamo. Every category within the luxury market faced varying degrees of impact. Luxury beauty, benefiting from a high online presence, experienced single-digit declines. However, the watch market suffered the most significant blow, with sales plummeting by 20% to 25% compared to 2021. The fashion and lifestyle segment witnessed a dip of 15% to 20%, while jewelry and leather goods sales contracted by 10% to 15%.
Nevertheless, there is cause for optimism regarding the future of China’s luxury market. The decision to dismantle the zero-COVID policy by Beijing in early December is anticipated to spur growth. Improved footfall in shopping malls and a rebound in consumer sentiment are among the anticipated outcomes. Bain & Company predicts that sales may reach 2021 levels sometime in the first or second half of 2023.
While there is a positive outlook, luxury brands still face challenges that demand attention. One key concern lies in the pricing discrepancy between China and Europe. Until international travel resumes fully, brands must address this gap to ensure a seamless shopping experience for consumers.
In conclusion, the contraction of China’s luxury market in 2022 provides insights into the impact of the zero-COVID policy and economic slowdown. However, with the policy’s dismantling and the potential for growth on the horizon, the luxury market in China is poised to regain momentum.
Useful links:
1. Bain & Company’s insights on luxury goods and fashion
2. China Daily’s article on China’s luxury market decline
