Luxury’s China Priorities in the Year of the Snake

China was at the epicentre of luxury’s poor performance last year. From LVMH to Richemont, companies saw declining demand in the market that was once the engine of the global industry. This year, Kering has plans to shrink its retail footprint in the country and even companies that are still expanding, like Hermès, show signs of caution. Despite a gradually improving picture, luxury executives are still worried about the road ahead.

“I think part of 2025 will not be easy in [China],” conceded Prada Group chief executive Andrea Guerra in BoF’s new joint report with McKinsey & Company, The State of Fashion: Luxury. “[But] we [strongly] believe in the long-term [potential] of Chinese consumers and China.”

Still, the immediate outlook does not inspire confidence. China’s luxury sales are expected to remain flat this year, following last year’s decline of between 18 and 20 percent, according to consultancy Bain and Company’s latest report. Though some of that decline was offset by sales of Chinese shoppers to overseas destinations like Japan, global sales to Chinese shoppers still fell 7 percent overall.

“Following a turbulent 2024, we expect China’s luxury market to continue its downward trend through the first half of 2025, with a cautiously optimistic outlook emerging in the latter half of the year, resulting in an overall flattish performance for the whole year,” said Weiwei Xing, a China-based partner at Bain.

Bain’s view chimes with other forecasts, although some are slightly less optimistic. McKinsey expects China’s personal luxury goods market to flatline this year in the best-case scenario. However, it should turn a corner in the next two years, with annual growth predicted to hit between 3 and 5 percent. That would be welcome news to many but it is still a far cry from the more than 18 percent annual growth the market enjoyed between 2019 and 2023.

Macroeconomic and geopolitical risks still weigh heavily on the China market, despite some early positive signs since the Chinese government embarked on an economic stimulus — one being their assertion that GDP growth hit the official target of 5 percent in 2024. Lingering headwinds include the property crisis and youth unemployment among others. The situation could worsen if there is a trade war with the US under President Donald Trump, who this month threatened China with a 10 percent punitive duty and last year floated 60 percent tariffs.

On milestones like Chinese New Year, which is celebrated today, there is heightened scrutiny on the health of the consumer market. Tepid sentiment is expected to continue during the week-long Spring Festival holiday that follows new year, although the authorities have predicted an uplift in the number of people travelling during the wider 40-day Chunyun period which bookends the festivities.

One certainty in an otherwise uncertain year is that no amount of marketing buzz from ‘Year of the Snake’ campaigns will propel a turnaround without major action from luxury brands over the next twelve months.

Given China’s complex market environment and uncertain economic outlook — not to mention the unpredictability of the global geopolitical context — luxury brands must identify key priorities to help them tap nuanced opportunities whilst overcoming some of the challenges that will inevitably arise in the year ahead.

Optimise retail footprints

Some brands started consolidating their retail footprint in China years ago whilst others only recently made it a priority.

A number of OTB Group brand stores have closed including Marni, Maison Margiela and Jil Sander. In July, Gucci exited Beijing’s Taiyuan Wangfujing department store; in November, Loewe closed its boutique in Kunming. Others have stalled such as Louis Vuitton’s delayed launch of the Taikoo Li North boutique in Beijing. McKinsey’s Shanghai-based senior partner Daniel Zipser predicts the possible continuation of this trend, asserting “we might see downsizing and adjustments in retail” in 2025.

Conversely, other brands have addressed gaps in the country with openings. Just last month, Balenciaga opened two mega-stores in one week in Shanghai and Beijing – the latter being the brand’s largest in the world. Since May, it also opened new boutiques in Wuhan, Urumqi, and expanded its store in Hangzhou.

Chanel is, by its own admission, “under-distributed” with under 20 stores in the country in 2024, according to chief financial officer Philippe Blondiaux. Ralph Lauren’s chief executive Patrice Louvet told BoF that the US brand is arguably “underdeveloped relative to other luxury brands, because China is about 8 percent” [of sales]. The company has a “very focused strategy” on just the top six cities, unlike other players.

“Less is not necessarily more,” said China market marketing consultant Amber Wu. “But if you have the budget and a long-term commitment, it is advisable to keep investing in physical retail or finding innovative ways to meet your customer beyond online.”

According to Bain’s recent China luxury report, tier-2 and -3 city consumers still have strong purchasing power. “We are seeing an increase in sales and values in these cities,” stated Bain’s Xing, adding that these cities still represent “the largest potential for brands.”

Anny Liu, general manager of Alibaba Group’s Tmall Luxury Pavilion agrees. “High-spending women from different city tiers and young consumers like outdoor enthusiasts are becoming new growth drivers in China’s luxury market,” she said.

“The growing influence of affluent women from lower-tier cities is driving luxury brands to lean on Tmall [more] to reach [them] where physical stores have limited coverage.”

Monitor global pricing

Pricing is an increasingly serious issue for luxury houses. Xing noted that price gaps between China and other markets have widened with exchange rate fluctuations and other factors. This has been exacerbated by the slowing economy denting purchasing power for some Chinese consumers.

On top of arbitrage, Bain cites the continued threat of the grey market including daigou platforms where discounts have been deepening. According to brands tracked by Re-hub, the overall grey market grew by approximately 5 percent in 2024. Large scale and professional daigou agents who benefit from wholesale distribution channels are likely the main source of supply. They pose significant risks such as undermining profit potential and threatening brand equity.

The consultancy urges brands to better monitor and harmonise their pricing whilst tightening operations in the year ahead. “In 2025, we are expecting more outbound travellers and daigou activites to be more prominent so that’s why we need a globally aligned pricing strategy,” Xing stated. To counter this, she advises brands to look for ways to build stronger connections with customers, especially VICs (very important customers, which account for 45 percent of spend) so that they choose official channels over unofficial ones to get a better overall client experience. One key area to invest in is aftersales services.

Lean into silver spenders

Amid a shrinking overall population and low birth rate, the number of over-65s in China is on track to double to 30 percent of the population by 2035, according to state media.

McKinsey’s Zipser believes that the wider 50-plus consumer bracket presents an important growth opportunity for otherwise youth-obsessed luxury players. “Up until now, brands have not focused the assortment, communication and marketing on this segment at all. We believe it is super important for luxury brands in particular to lean into them now,” he said.

During the latest Singles Day, Alibaba data pointed to mature women in lower-tier cities demonstrating significant growth in spending per capita compared to a year earlier. These women are also shifting their consumption patterns towards niche brands with a stronger value proposition — in contrast with VICs and some younger consumers.

The ‘demographic pyramid is indeed rebalancing towards the more mature citizen, confirmed Claudia D’Arpizio, senior partner and global head of fashion and luxury at Bain. “We see more [of]… a focus on the older generation as well as family trips and the need for creating value propositions that are segmented for all different ages.”

Address customer fatigue

“Given that customers are feeling overwhelmed by choice and in order for them to feel the curation is meaningful, they will need help to find what they are looking for that is precise and human,” advised Gemma D’Auria, McKinsey’s global leader of apparel, fashion and luxury, adding that it’s almost “back to basics” when it comes to the role of the client advisor.

Whilst acknowledging the value of tech-enabled personalisation strategies, D’Auria encourages brands to invest more in talent management to help address issues around customer fatigue.

There is “widespread dissatisfaction with the in-store experience across many luxury brands in China, characterised by what they described as hostile attitudes from sales personnel,” wrote Daniel Langer, founder and CEO of the luxury consultancy Équité, in a recent analysis for Jing Daily chronicling the shopping experiences of senior managers in China.

“These seasoned professionals reported feeling judged, with exceptional service reserved only for those perceived as big spenders. A lack of empathy and warmth emerged as a recurring theme — one strong enough to drive many to seek out shopping experiences abroad, where they felt more valued and respected.”

Incorporate the human touch

Agenda-setting retailers in China increasingly champion the human touch. “We need to listen out for the quieter [sounds as market indicators] rather than relying [too much] on data capture,” said Charles Wang, chief executive of multi-brand store Dongliang which sells around 40 brands including Lemaire and The Row. Wang insists that a “richer, instinctive understanding” of the consumer means adopting an approach that is less reliant on technology and more reliant on merchants’ experience.

The focus on offline does not mean luxury players can take their eyes off digital sales channels. According to Bain, Hainan sales were hindered last year by competitive prices on major e-commerce platforms such as Alibaba’s Tmall and ByteDance’s Douyin, thereby eroding the duty-free island’s price advantages. Meanwhile, e-commerce and social commerce platforms like JD.com, Xiaohongshu, WeChat stores and others continue to acquire customers through innovation

The need to surprise and delight implies that brands must start reaching customers where they don’t expect it. For example, Prada launched a cultural podcast featuring conversations with Chinese figures in art, architecture and film after new year.

Integrate hospitality experiences

A desire for experiences is permeating all corners of Chinese society. The hospitality sector is especially notable as overseas travel continues to recover.

A report by MDRi confirms that shoppers of personal luxury goods are seeking more luxurious travel experiences from air travel to hotels. “Luxury brands should consider how to align their luxury product offerings with complementary luxury experiences,” MDRi’s chief executive Simon Tye explained.

Consumers’ priorities vary by age. Younger cohorts are immersing themselves in luxury experiences that nurture their physical and mental wellbeing, according to the report. They typically prefer holistic and exceptional customer service that goes beyond the norm and show a growing interest in purchasing second-hand luxury goods. Notably, it also found that the Millennial cohort gravitates toward “indulgent experiences that are distinctive and memorable.”

Diversify local talent partnerships

Experts believe there will be an uptick in PR activity and events in China this year. Zipser expects to see “a higher degree of marketing spending.” One key area of investment will be celebrity marketing and collaborations. However, experts say brands must put more effort into seeking out and working with new local agencies, different entertainers and a more diverse cast of creatives.

“Shoppers are tired of seeing the same faces. Consumers here want variety and authenticity. That’s why there is slowly a steady growth of authentic KOLs on the rise,” said creative industry strategist Alvin Goh.

Kering, for example, has partnered with contemporary artist Jiang Miao, who is known for creating unfathomable and mysterious three-dimensional spaces. Cai Jinqing, president of Kering Greater China, said it is the fifth year for the luxury group to co-create with Chinese female artists for New Year as part of its cultural heritage and local talent programme.

Given the repetition of certain actors and musicians as ambassadors, Wang advises brands to “keep campaigns specific to the spokesperson.” He thinks comedians could still be a good bet in 2025, despite the risks associated with them.

Getting storytelling just right will be key to making gains in 2025. Wang advises against an “over-reliance on the historicisation” of the house. While young luxury consumers in China are excited to learn about brands’ stories, Tye added that they want to “continue the discovery themselves.” They are also interested in how brands are “evolving the story with them,” and perhaps most importantly, “how and where” they find commonality with Chinese heritage.

The incorporation of ‘feiyi’, or Chinese intangible cultural heritage, into global brands’ marketing and product ranges is still on the rise, as seen in the latest line-up of Chinese New Year campaigns. Loewe’s continued engagement with Chinese craft, Burberry’s exploration of traditional materials like woven bamboo and Tiffany’s artisanal collaboration with multidisciplinary artist Oscar Wang are all good examples.