Global Luxury Market Struggles Amid Economic Pressures, Facing Bigger Issue in China

Luxury Goods Market Faces 1-3% Sales Decline Amid Global Economic Pressure

The luxury goods market is predicted to experience a 1% to 3% decline in sales in the first quarter of 2024, attributed to the economic downturn, according to a mid-year report by Bain & Company. The Chinese market has shown particularly weak performance, partly due to the reduction in domestic consumption as the resurgence of outbound tourism lessens. Moreover, heightened economic uncertainty has eroded the confidence of middle-class consumers, prompting a phenomenon termed "luxury shame," reminiscent of the situation in the Americas during the global financial crisis of 2008-2009. LVMH Group witnessed a 6% revenue decline in the first quarter in all Asian markets excluding Japan, the only region experiencing a decline. In contrast, Burberry's operating profit declined by 25% in the 2024 fiscal year, while Hermes saw significant growth in the Japanese market. PwC predicts that by 2030, China will become the world's largest personal luxury goods market. Bain also indicated that global merger and acquisition transactions hit a ten-year low in 2023, but a rebound is expected in 2024.

Key Takeaways

• Economic uncertainty has led to weak domestic demand and a decline in confidence among middle-class consumers.
• "Luxury shame" has surfaced in the Chinese market, akin to the situation in the Americas during the 2008-2009 global financial crisis.
• The global luxury goods market is expected to witness a 1% to 3% sales decline in the first quarter of 2024.
• The Chinese market is affected by both the resurgence of outbound tourism and economic downturn pressures.
• LVMH's revenue in all Asian markets excluding Japan dropped by 6% in the first quarter.

Analysis

The economic downturn and uncertainty have weakened the purchasing power of the middle class, leading to a decline in the global luxury goods market. The Chinese market has experienced a reduction in domestic demand due to the resurgence of outbound tourism, coupled with the "luxury shame" phenomenon, exacerbating market softness. Brands such as LVMH and Burberry have been particularly affected in Asia, while Hermes has shown growth against the odds in Japan. In the long term, the Chinese luxury goods market still holds growth potential, but short-term focus should be on consumer confidence recovery and market strategy adjustments. The anticipated increase in global merger activities is expected to bring restructuring opportunities to the luxury goods industry as the market rebounds.

Did You Know?

• "Luxury Shame" Phenomenon: This is a socio-psychological phenomenon referring to an increased sense of shame among consumers when facing economic hardship or increased uncertainty, leading them to reduce the purchase of luxury goods and seek more practical or reasonably priced items instead. A similar situation emerged in the Americas during the 2008-2009 global financial crisis, as consumers avoided non-essential luxury purchases over concerns about financial instability and security.
• Bain & Company: Bain & Company is a global management consulting firm founded in 1973, headquartered in Boston, USA. It provides a wide range of consulting services including strategy, operations, technology, organization, and change management. In the luxury goods market research space, Bain & Company is renowned for its in-depth market analysis and predictions; its reports are often considered significant indicators of industry trends.
• LVMH Group: LVMH Moët Hennessy Louis Vuitton SE, commonly known as LVMH, is the world's largest luxury goods group, owning over 70 brands spanning fashion, leather goods, perfumes, cosmetics, jewelry, and wines and spirits. The performance of LVMH is often seen as a barometer of the health of the global luxury goods market. Its reported 6% revenue decline in the first quarter in all Asian markets excluding Japan reflects the challenges and changes in the luxury goods market in that region.