news

Text | Lao Yuer

Editor | Yang Xuran

Generally speaking, luxury goods are relatively less affected by economic fluctuations, the core reason being that the customer base has the strongest ability to pay in the entire consumer market. But recently, even the world's top luxury goods have encountered a general market pessimism.

This includes a decline in revenue, profits and stock prices of luxury goods companies, as well as a decline in the performance of commercial entities including airport stores and real estate.

likeHang Lung PropertiesandSwire Properties, two real estate companies that own many high-end commercial buildings, have encountered performance problems this year.

The revenue performance of Shanghai Hang Lung Plaza fell 8% year-on-year, Shanghai Grand Gateway 66 fell 4%, Shenyang City Hall Hang Lung Plaza fell 14%, Kunming Hang Lung Plaza fell 1%, and Wuhan Hang Lung Plaza fell 2%; among the six retail properties of Swire Properties in the Mainland, five saw a year-on-year decline in sales in the first half of the year, including a year-on-year sales decline of 19.6% at Shanghai Xingye Taikoo Hui and a year-on-year sales decrease of 17.2% at Chengdu Taikoo Li.

High-end businesses are no longer prosperous because luxury goods sales are no longer as popular as they used to be.

UBSThe report states,Domestic luxury goods sales have fallen by about 10% so far this yearIt is expected that between the second half of this year and 2026, luxury brands may slow down the pace of opening stores in China, which will put performance pressure on high-end commercial entities.

Luxury goods have always been the "spiritual high ground" in the consumer field. Relying on strong brands, luxury goods continue to increase in price, showing the world their ability to attract money.

But now, in the face of more rational consumers, even these big brands can no longer reap the Chinese market.

01 Growth stalls

The weakness of major luxury brands is clearly reflected in their half-year results.

LVMH Group, which stole the show at the Paris Olympics, announced its first-half results for 2024 on July 24, with a total revenue of 41.677 billion euros, down 1% year-on-year. Net profit fell 14% to 7.267 billion euros. Excluding the special year of 2020, this is the first time in nearly six years that LVMH Group has seen a decline in first-half performance.

To achieve such results, China’s Asia-Pacific market has made an “indispensable contribution”.

According to regional sales, LV has achieved varying degrees of revenue growth in the United States, Europe and Japan so far this year, but sales in the Asia-Pacific market where China is located have fallen by double digits, and its share of global sales has dropped by 4 percentage points compared with 34% in the same period last year. The declining performance has made Arnault, the world's richest man, the billionaire with the largest decline in wealth in 2024.

Let's look at Kering. Its latest results show that revenue fell 11% to 9 billion euros in the first half of 2024, and operating profit fell 42% to 1.6 billion euros. In the Asia-Pacific region excluding Japan, revenue fell most significantly, down 22% year-on-year, the largest decline in the world.

In addition, Armani issued a statement that sales in the second half of last year and the first half of this year fell by single digits, and the Asian market cooled.

Even for Hermès, which continues to grow, the growth rate in the Asia-Pacific market, including China, in the first half of 2024 was only 5.5%, a significant slowdown from 14% in the first quarter. The market share dropped from 49% to 47%. Hermès has clearly pointed out that the Chinese market is showing signs of weakness.

Similar situations occur not only in luxury goods, but also in many ultra-high-end products.

July 9,PorscheAccording to the data released, the global sales volume in the first half of this year was 155,900 vehicles, a year-on-year decrease of 7%. Among them, 29,600 new vehicles were delivered in the Chinese market, a year-on-year decrease of 33%.

In addition, from the import data, super luxury cars fell 48% year-on-year in the first half of the year. Among them, Bentley fell 28%, Maserati 70%,Ferrari30%, Aston 50%, McLaren 92%.

European luxury goods are in a slump, and domestic luxury goods are no exception.

Take Moutai as an example. Due to the structural adjustment of the liquor industry in the past two years, the "hard currency" that was once invincible in China has gradually become hot. In the Guizhou Moutai special auction of Poly Spring Auction in June this year, the first 14 lots were all unsold, and among the lots that were sold afterwards, only one was sold at a price higher than the highest estimated price.

Tinghua liquor, which is even more expensive than Moutai, almost disappeared after March 15.

Faced with the slowdown in sales, luxury brands' repeated attempts to increase prices are gradually becoming ineffective.

02 Price increase fails

On July 2, 2018, LV announced a price increase across the board, ranging from 5% to 7%. This is the 10th time LV has increased its prices in the past three years.

Dior, which is also owned by LVMH, has completed the price increase at the end of June. The prices of products including Lady Dior bag, Booktote bag, Saddle bag have been adjusted to varying degrees, with an increase of about 3% to 9%.

Such a price increase was not originally on its established schedule. At the financial report meeting at the beginning of the year, the group's senior management also said that they had decided to cancel the original price increase plan in order to maintain market stability.

Six months later, LVMH still decided to "raise" prices, mainly due to the huge pressure on performance. Past experience tells luxury companies: as long as I raise prices enough, I can ensure that performance continues to rise.

Economists call this kind of conspicuous consumption luxury goods Veblen goods, which are mainly for showing off rather than for actual use. So, their logic is: the higher the price, the more popular the Veblen goods.

The sales clerks of luxury goods always say, "We will continue to raise prices, so you should spend money early," and the brands do so. Hermès raised the price of all its products in January this year, with an average global increase of about 8% to 9%; after Gucci's price adjustment, some of its best-selling bags increased by more than 1,000 yuan, an increase of more than 10%; after CHANEL's global price increase this year, the price of the classic CF handbag in the Chinese market has exceeded 90,000 yuan.

According to the statistics of Yaoke Research Institute,Over the past three years, prices of bags from top luxury brands have risen by an average of more than 32%.

Among domestic enterprises, the most similar situation is the liquor industry. Since 2000, the price of Moutai Feitian has increased almost every year, with the highest market price exceeding 4,000 yuan per bottle.

besidesPian Zai HuangFrom 2004 to 2020, the price of Pien Tze Huang tablets was raised 19 times. In May 2023, its domestic retail price was raised from 590 yuan/tablet to 760 yuan/tablet, an increase of more than 22%, breaking the record of all previous price increases.

A temporary price increase may be a relief, but continuous price increases will not always be a relief. A moderate price increase can attract potential consumers, but at the same time, every price increase will filter out more customers from your consumer circle. Moreover, even if consumers do not actively choose customers, they are actively choosing whether to stay in the circle.

The National Bureau of Statistics released statistics on July 15, showing that from January to June 2024, the total retail sales of consumer goods was 23.6 trillion yuan, a year-on-year increase of 3.7%. However, consumption of cosmetics, gold and silver jewelry continued to slump, completely underperforming the market.

In June this year, the total retail sales of cosmetics was 40.5 billion yuan, down 14.6% year-on-year, the largest monthly decline this year. This is the first time in the past 10 years that the total retail sales of cosmetics have declined in June. The total retail sales of cosmetics in the first half of the year was 216.8 billion yuan, a slight increase of 1% over the same period last year. Gold and silver jewelry consumption also fell by 3.7% year-on-year in June, and only slightly increased by 1% in the first half of the year.

More and more consumers are not surprised by the price increase of luxury goods. "It goes up as it goes up, the moon shines on the hills. It goes up as it goes up, I hold my wallet tight." The idea of ​​creating a sense of urgency by raising prices is no longer a good way to "fool" China's wealthy.

03 Loose system

For a long time, it has been too easy for luxury goods companies to make money from Chinese people.

According to the latest "2023 China Luxury Market Report" released by Bain & Company, the prices of luxury fashion, leather goods, shoes and other categories in mainland China are significantly higher than those abroad.

Taking the Chinese mainland and European markets as an example, the price difference between luxury luggage priced above 10,000 yuan in the two markets is 20% to 25%, and the price difference of entry-level luxury leather goods priced below 10,000 yuan is even as high as 30% to 40%. The price difference of jewelry and high-end shoes in the two markets is 20% to 30%, and these have not yet taken into account the value-added tax refund.

There are even occasional price increases specifically for the Chinese market.

Chinese consumers boost luxury goods companies' performance

For example, LVMH previously pointed out at its earnings conference that LV's limited price increase was mainly for leather products in order to narrow the price gap between different markets around the world.The last four price adjustments were all targeted at the Chinese market.。

Moreover, the issue of consumption tax reform, which has been discussed recently, is being put on the agenda. Once the hammer falls, luxury goods will inevitably face an increase in tax costs. In the future, this part of the cost pressure will most likely be passed on to consumers in the continued price increase of luxury goods.

Nowadays, Chinese people don’t want to be taken advantage of anymore, although they are still very interested in luxury goods.

Outside the Chinese market, there are cheaper similar products for sale, and many people have begun to resume "global procurement"

In 2023, the proportion of luxury goods consumption by Chinese people abroad has returned to around 40% before 2020, far higher than the 25% consumption in the domestic market.

This year, luxury consumption in Japan has increased significantly, with Chinese consumers making a significant contribution. LVMH specifically pointed out in its financial report that the special growth in the Japanese market came from the consumption of Chinese tourists.

Large numbers of Chinese consumers travel to Japan to buy luxury goods

The emergence of this situation itself shows that Chinese consumers still have strong purchasing power, and it also proves that Chinese consumers are becoming more rational and their willingness to pay for brand premiums is decreasing.

In other words, the pricing system of luxury goods for Chinese consumers has begun to loosen.

According to the "2023 China Luxury Report" released by Yaoke Research Institute, China's luxury consumption has entered a comprehensive cost-effectiveness stage measured by brand cost-effectiveness, product cost-effectiveness and service cost-effectiveness.

Axel Dumas, executive chairman of Hermès, also believes that "Chinese customers are now very mature. They are now more pursuing high-quality products and are not necessarily buying products with trademarks (i.e. big brands)."

For luxury brands like Hermès, the changes in Chinese consumers are not something to be optimistic about, but they are beneficial for the reshaping of China's future consumer values.

The Chinese have always valued thrift and diligence, and they still maintain this habit. For a long time in ancient and modern Chinese history, the word "luxury" was a derogatory behavior that was inconsistent with mainstream values.

It is only in the past decade or so, with the rapid development of China's economy and the massive accumulation of social wealth, the middle class has risen rapidly. After meeting their basic living needs, many people tend to use luxury consumption to show off their wealth and flaunt their class.

Now, this brief era is about to pass.

04 Conclusion

Generally speaking, it is inevitable to spend a lot of money on brand premium. This is what Chinese consumers have to go through in a period of time - being exploited by European and American companies to make "easy money" by worshipping them.

This consumption concept of advocating luxury will inevitably be replaced by a more rational and appropriate consumption concept.

On the one hand,Some consumers who have a demand for the functionality of luxury goods will gradually examine whether the products they purchased have truly helped them to make the transition to a higher class or circle.If not, the willingness to continue purchasing will naturally be greatly reduced.

In addition, luxury consumption is closely related to consumers’ confidence in their future expectations. More and more middle-class people are gradually giving up luxury goods and returning to ordinary goods or even white-label goods, which actually reflectsThe middle class in Chinese society is redefining their future and readjusting their expectations for their personal and family futures.

Compared with the past period, when China's middle class was blindly optimistic and even overly excited about economic, social and personal development, this is clearly a progress in concept.

And, the deeper root lies in thatLuxury goods are a specific social and cultural product based on material poverty and scarcity. The actual connotation is that when materials are scarce, materials in turn define people; when wealth is scarce, wealth in turn defines people; when capital is scarce, capital in turn defines people.

This is a rather backward social stratification system, a product of an underdeveloped economy. Now that more and more Chinese people have escaped from the period of material scarcity, the backward concept of classifying people by material possessions will gradually begin to fade away from the stage of history.