According to the recent financial report released by Richemont, due to the overall economic weakness, Chinese consumers reduced their spending on luxury goods in the last quarter of 2024.
Richemont, headquartered in Switzerland, owns renowned brands such as Buccellati, Cartier, Delvaux, and Montblanc. The company experienced an 18% decrease in sales in China during the last three months of 2024. In sharp contrast, the group saw strong rebounds in sales in other global markets, with sales increasing by 22% in the Americas, 19% in Europe, and 19% in Japan.
The decline in sales in China for Richemont continues a similar downward trend seen in the past 12 months by other luxury goods companies like Louis Vuitton and Estée Lauder, indicating that the reduction in spending by Chinese consumers on luxury items is becoming an increasingly widespread trend rather than a temporary phenomenon.
This trend reflects a general decline in consumer spending in China, with retail sales growth dropping from double digits over a decade ago to low single digits by the end of last year.
The end of the “bubble prosperity” has left many Chinese households burdened with debt, as asset prices decline and job opportunities shrink due to the slowed economic growth.
For over a decade, the world’s second-largest economy has relied on loose monetary policies and strong government spending to drive economic growth and offset challenges in the export market.
The problem with these policies is that they fuel asset bubbles, leading to volatile economic swings: brief periods of prosperity often followed by recession.
For example, loose monetary policy inflates high-risk household assets like stocks and real estate. However, once central banks lower rates to near-zero levels, they are unable to further stimulate the economy, resulting in the bursting of bubbles.
This scenario occurred in Japan in the late 1980s and early 1990s and has been observed in China over the past decade.
Similarly, fiscal stimuli are often directed towards economically unfeasible construction projects, such as bridges to sparsely populated areas, airports without passengers, and shopping malls without customers. While these projects initially boost economic growth, once completed, a downturn follows.
In summary, China’s economy is overly reliant on repeated monetary and fiscal stimuli. It races at high speeds under hefty policy boosts, but once the effects wear off, the economy slows down. For instance, after substantial monetary and fiscal expenditures, China’s GDP growth rate reached nearly double digits in 2009 and 2010, but by 2024, it had dropped to around 5%.
The slowing economic growth and asset price declines have left Chinese consumers with scarce resources and diminished desire to purchase non-essential items like imported luxury goods.
“As the Chinese economy slows down, consumers’ priorities are changing, notably with reduced spending on non-essential luxury items,” said registered financial analyst Michael Ashley Schulman in an interview with The Epoch Times.
“This trend not only impacts global luxury giants like Richemont, Porsche, LVMH, Kering, and Burberry but also indicates that Chinese consumers are adopting a more cautious economic stance amidst uncertain times and escalating tensions with the West.”
Moreover, Schulman believes that propaganda campaigns promoting national pride are convincing Chinese consumers to prefer domestic brands, especially in technology, fashion, and cosmetics sectors, offering high-quality products at more competitive prices. He added, “Past tensions, such as boycotts against brands like H&M and Nike due to their stances on Xinjiang cotton issues, have also fueled public sentiment against Western goods.”