LONDON - Fears of a slowdown among Chinese shoppers have dogged the luxury industry for the better part of a year. Last week, the scale of the problem hit home for one of fashion’s biggest but most exposed brands, Gucci.

French group Kering saw US$9 billion (S$12 billion) wiped off its market value after warning that sales of the Italian label’s products in China have slumped in this quarter. The slowdown is also starting to show up in other corners of the luxury industry.

A separate report showed Swiss watch exports to the country – a leading destination for high-end timepieces – tumbled in February. Analysts, meanwhile, are predicting China’s luxury demand will cool further in 2024.

The spate of sobering news provides the latest evidence that an anticipated surge in spending by well-heeled Chinese freed from the world’s strictest Covid-19 lockdowns is failing to materialise. While some luxury companies are managing the fallout better than others, the rest could be forced to rethink how they do business in China – starting with Kering.

“I have not bought any Gucci bags myself for years,” said Ms Wu Xiaofang, a 34-year-old banker living in Shanghai who was once so enamoured with the brand she bought three bags during a trip to Italy in 2016. “The new designs are bad.”

Ms Wu is among a generation of Chinese luxury shoppers who have grown more selective about where to spend their cash. Rising unemployment and a property downturn have hurt consumer confidence, while deflationary pressures are fuelling concern about growth in one of the world’s largest consumer markets.

Mr Sabato De Sarno, who became Gucci’s creative director in 2023, has adopted a more minimalist aesthetic than the flamboyant designs of his predecessor Alessandro Michele.

It is too soon to say whether his sleeker and more subdued fashions will resonate with Chinese customers, as they have only recently appeared in stores.

Yet some shoppers may find them less distinctive than before, said fashion consultant Mark Liu, and too similar in style to the likes of Valentino, Prada and Celine.

Kering said early ready-to-wear products from the latest Ancora collection by Mr De Sarno have been well received.

Gucci has long been one of the most volatile of the major luxury brands, its fortunes rising and falling based on buzz around designers such as Mr Michele and a predecessor, American designer Tom Ford.

That makes Kering highly vulnerable to shifts in taste, especially as the Italian brand accounts for about half of its sales and more than two-thirds of its profit.

Plunging shares

Kering stunned investors with its March 19 announcement that Gucci sales have fallen nearly 20 per cent in this quarter, led by the Asia-Pacific region. The share price fell the most in three decades.

The slowdown in China is affecting brands aside from Gucci as well, if not as dramatically. While top luxury houses such as Rolex, Hermes, Chanel and Louis Vuitton saw double-digit growth in 2023 in Hong Kong – a popular destination for Chinese shoppers – those sales slowed as early as October, said a source familiar with the matter, with second-hand prices for premium watches plunging 40 per cent in January from the year before.

Few luxury goods are more exposed to changes in Chinese consumer sentiment than Swiss watches. Exports to China plunged by 25 per cent in February from the year before, the Federation of the Swiss Watch Industry said last week, while shipments to Hong Kong dropped by 19 per cent.

Together, exports to those two destinations surpass the United States, the biggest single market for Swiss timepieces.

“There is a slowdown,” said Swatch Group chief executive Nick Hayek, whose brands include Omega and Tissot.

China accounted for a third of the company’s sales in 2023.

Shoppers in China and Hong Kong are visiting Swatch Group brand stores, but they are more hesitant to pull the trigger on a major purchase, the CEO said.

“They have the money, but they are more critical on when to spend and how to spend it.”

Representatives for Rolex and Chanel declined to comment, while LVMH and Hermes did not immediately respond to requests for comment.

Slowing growth

The ills are not limited to China. After a recent two-week trip to Asia, HSBC luxury analysts led by Erwan Rambourg said in a note on March 22 that the demand situation in China is “proving tough”.

But disappointment also came from lacklustre trends in Hong Kong, Macau and Singapore as Chinese tourists, although coming in greater numbers, do not seem to be spending much, they wrote.

Some brands may be forced to find ways to reduce their reliance on China.

Growth in luxury sales there in 2024 is forecast to slow to the mid-single digits, compared with 12 per cent in 2023, according to a report from Bain & Co, a consulting company.

But that growth will be driven by high-net-worth individuals or those with investable assets of more than 10 million yuan (S$1.9 million).

Some luxury labels have bucked the slowing trend.

Prada, which owns the brand Miu Miu, saw retail sales rise 32 per cent in the Asia-Pacific region, excluding Japan, in the fourth quarter.

Earlier in March, the Italian group’s CEO Andrea Guerra said he was satisfied with trends in January and February.

Hermes International also saw double-digit growth rates in the fourth quarter.

In uncertain times, Chinese consumers tend to prefer luxury items that are more likely to maintain their value over time, said co-author of the Bain report Bruno Lannes.

That is why brands with those products fared better than those rolling out seasonal goods, he said.

American cosmetics giant Estee Lauder, which owns labels including La Mer and Tom Ford, is continuing to bet big on China because of its long-term growth prospects and to avoid ceding ground to local upstarts.

The volatility will eventually ease as the expansion of the Chinese middle class keeps pushing per capita consumption higher over time.

“That trend is not changing,” CEO Fabrizio Freda said at a UBS conference in New York in March.

However, Mr Angelito Perez Tan Jr, co-founder and CEO of RTG Group Asia, which operates businesses including a luxury consultancy, said some luxury brands are reconsidering their Asia strategy to look beyond China for future growth.

India, South-east Asia and the Middle East are seen as having great potential in the longer term, he said.

“Executives have looked at it more holistically in terms of that there’s more to Asia than just China,” said Mr Tan.

“Luxury brands in general have realised that some of them were too reliant on the Chinese consumer. They realised that they cannot put all their eggs into one basket any more.” BLOOMBERG