Although it tripled in size in the five years to 2021, the sector shrank a year later as a result of the sweeping lockdowns that brought major cities like Shanghai to a standstill- and again in 2024 after a property rout sapped consumer confidence, according to Daxue Consulting. McKinsey & Co. reckons China’s luxury industry will grow by as much as 6% a year to 2030. Chinese shoppers’ spending power on high-end products has peaked, at least for now. Structural changes to the economy make a return to those days unlikely. Beijing continues to prioritize export-led growth over policies that would meaningfully boost personal consumption, while a tough job market is putting additional pressure on younger shoppers. These factors have reshaped consumer behaviour in two important and potentially lasting ways. 

For one, the relationship between China’s rising middle class and luxury has changed. During the gogo years, consumers stretched themselves financially to buy entry-level products such as leather handbags from high-end labels. But shoppers are now more price sensitive and increasingly choosing higher-value-for-money products. Nowhere is this more apparent than in the growing preference for prestige beauty, which is more affordable than traditional luxury staples such as leather goods. L’Oréal SA sales in North Asia were up 4.5% in its most recent quarter, a marked improvement from last year’s flat results. The performance was driven by 10% growth of the Luxe division- which includes Lancome, Kiehl's, and Helena Rubenstein- in China. 

Secondly, fewer Chinese are venturing overseas. Compared with 2019, when the majority of luxury purchases were made abroad, most buying now happens domestically. Households are still bruised by the five-year-old housing slump, which will take time to resolve. This matters enormously in a country where roughly 70% of wealth is tied up in property.