Luxury Shame Hurting European Brands

Clouds On The Horizon

In China, a notable shift in consumer behavior is underway as the country's affluent become increasingly cautious about displaying their wealth amidst economic challenges. According to a June report by Bain and Company, sluggish GDP growth and weakened consumer confidence have contributed to what's being termed as "luxury shame." This phenomenon sees wealthy individuals refraining from conspicuous spending, fearing perceptions of wealth display.

Senior partner Derek Deng from Bain & Company highlighted that while top-tier luxury segments continue to perform well, aspirational spending is becoming more restrained.
Claudia D’Arpizio, partner and global head of fashion and luxury at Bain & Company, noted a preference among consumers for "quiet luxury" — investing in understated and less conspicuous luxury goods.
Moreover, China's political landscape has influenced these shifts. Government initiatives, such as the "common prosperity" campaign aimed at reducing wealth disparities, have encouraged a more subdued approach to luxury consumption.
This governmental stance has also led to crackdowns on displays of opulence, affecting influencers and public figures known for flaunting wealth on social media platforms.

Despite China's position as the world's second-largest economy with a significant population of ultra-high-net-worth individuals, economic uncertainties following the COVID-19 pandemic have tempered spending appetites. Concerns over youth unemployment and challenges in the real estate market further contribute to this cautious consumer sentiment.

Discounts And Returns

China’s economic momentum slowed in the second quarter, with GDP growth at 4.7 percent year on year, falling short of forecasts. Luxury brands and retailers, facing overstock issues, have resorted to heavy discounting. Additionally, a weak yen has made luxury products cheaper in Japan compared to mainland China, further impacting sales.

E-commerce platforms have aggressively reduced prices to boost sales in the sluggish economy. According to Veronica Wang, partner at consulting firm OC&C in Hong Kong, these platforms prioritize short-term commercial performance over long-term brand equity, leading to frequent discounts during economic downturns.
This aggressive pricing has intensified competition, prompting frequent sales festivals by Chinese e-commerce groups. The luxury discounting platform Yoox Net-a-Porter even exited the Chinese market in June due to these pressures.
Jelena Sokolova, an analyst at Morningstar in London, highlighted the risks of uncontrolled discounting when selling through wholesalers, particularly online, where discounts are visible to a broader audience.

Despite these efforts, it remains uncertain whether discounts will effectively clear excess inventory, as consumer confidence in China remains low. Deloitte's research indicates a decline in Chinese consumers splurging on luxury items, with only 42 percent making such purchases in June 2024, down from 59 percent in 2022.

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