Summary of Key Points
In the first half of this year, the luxury goods industry faced tough times: traditional growth strategies (price increases, store expansions, inventory destruction, and endorsements by popular celebrities) failed to produce the desired results. The European Union even introduced a ban on destroying unsold products. However, the Chinese market became a lifeline—local consumer demand remained strong, unaffected by the decline in overseas travel. As a result, luxury brands have shifted to a more refined approach: they are abandoning arbitrary price hikes and focusing on high-value products and localized designs; closing less profitable stores to retain only large outlets in key shopping areas for wealthy customers; and reorienting their marketing efforts from attracting widespread attention to deeply engaging with celebrities and creating immersive experiences, with the aim of capturing high-net-worth clients and Generation Z.
1. The Chinese Market as a Stepping Stone: Stronger Local Consumer Loyalty than Expected
Previously, the industry feared that once overseas travel resumed, Chinese consumers would buy luxury goods abroad, leading to a decline in domestic sales. But reality has proven otherwise. With increasingly similar prices at home and abroad (due to exchange rate differences and tariff adjustments), as well as the advantage of exclusive products and excellent services (such as one-on-one shopping assistance) offered by local stores, Chinese consumers continue to prefer purchasing locally.
Data shows that Hermès has seen stable growth in its Greater China region, Burberry has increased sales by 9% in China, and LVMH has seen double-digit growth. Only Gucci’s performance in China has been declining. Brands are now making special efforts to cater to the Chinese market, launching new products exclusively there and targeting Generation Z, which has shown the fastest growth among new customers. The Chinese market has become a crucial pillar for luxury brands to withstand global economic challenges.
2. The Failure of Price Hikes: Luxury Brands Rely on High-Value Products and Consumer-Centric Approaches
Luxury brands used to rely on price increases to boost sales—Hermès’ Birkin bag saw a 12% price rise last year, and Chanel’s classic handbag increased by 120% over five years. This year, however, leading brands have stopped raising prices significantly and adopted new strategies:
- Offering Higher-Value Products: For example, Hermès’ leather goods business grew by 9.4%, the fastest of all its segments, and LVMH’s jewelry division has seen double-digit growth for seven consecutive quarters, with luxury jewelry accounting for 60% of sales. Brands are also focusing on their core high-value products.
- Localized Designs That Don’t Feel Stuffy: Limited editions used to feature zodiac symbols or cultural elements from intangible heritage, but now they better understand the preferences of younger consumers. For instance, during Valentine’s Day, Cartier released a pink sapphire LOVE necklace, and Chaumet created “Fortune Telling” ring pairs with modern designs that resonate with Generation Z.
- Increasing Capacity: Brands are expanding production to meet real demand, rather than creating scarcity through limited editions.
3. Store Closures: Luxury Brands Focus on Strategic Locations to Attract Wealthy Customers
Luxury brands used to expand into secondary and tertiary cities, but now they are downsizing:
- Gucci plans to close 100 stores this year; LVMH has closed five Cartier outlets, and LV has withdrawn from cities like Kunming and Guiyang.
- They are investing heavily in large outlets in key shopping areas: Hermès opened a five-story flagship store in Beijing’s Sanlitun district, Prada opened the largest store in South China in Shenzhen Bay (with celebrities like Yang Yang and Li Xian attending the opening), and Dior launched a concept store that combines shopping with dining in Tokyo.
The goal is to create a sense of exclusivity—large, premium stores provide one-on-one service and private spaces to retain high-net-worth customers.
4. Marketing Shifts: From Mass Appeal to Deep Engagement and Immersive Experiences
Luxury brands once relied on popular celebrities for endorsements and extensive marketing campaigns. Now, they are adopting new approaches:
- Celebrities as Co-Creators: For example, TOD’S collaborated with actor Xiao Zhan on the “X Capsule Series,” which sold out within minutes and generated nearly ten million in sales within two hours. Fans buy not only the product but also the sense of exclusivity associated with their favorite celebrity.
- Targeted Endorsements: Celebrities like Song Zuer have quickly risen from makeup endorsers to global brand ambassadors, while Zhang Linghe was directly appointed as a Bulgari ambassador, skipping the “brand friend” stage. Brands are focusing on celebrities whose styles align with their target audience.
- Immersive Experiences: Hermès moved its Parisian workshop to Shanghai for customers to see craftsmanship firsthand, and Parma’s Acqua di Parma held an exhibition called “Good Morning Poetic,” creating an immersive experience with scent and lighting. The focus is on connecting with core customers and enhancing their brand loyalty.
5. Moving Beyond Traditional Tactics: A New Era of Precision
Traditional growth strategies (price hikes, store expansions, inventory destruction) are no longer effective. The EU ban has restricted inventory destruction, and price increases have become unpopular among consumers. Instead, luxury brands are focusing on precision—targeting Chinese high-net-worth customers and Generation Z with high-value products and exclusive services, shifting from scale expansion to quality improvement.
In short, the era of rapid growth in the luxury industry is over. The competition now revolves around who can better understand local consumer needs and deliver exceptional products and services. The Chinese market, especially its young consumers, has become a critical factor in this transformation.