Luxury brands are flourishing? Here is what we miss.

Luxury brands, would they still be luxury without explosive demand? What if China lose its needs for haute couture? Well, we still don't know yet. However, it is convincing that luxury industry is hugely relying on one nationality. Carol Ryan, journalist of WSJ, mentions that having a stock of Hermès and Gucci’s owner Kering could be riskier than the past.

Rapid recovery for expensive luxury goods are prominent in China after Covid-19; that does not mean luxury brands are carrying out excellent performance. Weak demand problem still remains outside of China. Luxury spending from China or Chinese nationals were about only 11% of total global spending in 2019.

But in other side, Chinese demand for luxury brands are steadily increasing, in which China will cover about half of global luxury spending by 2025. Investors were positive about those luxury brands since China has been eagerly looking for it for the past few years. Stocks of Louis Vuitton, Christian Dior, etc has climbed up.

Japan had similar experience during 1980's and 1990's. Global luxury sales to the Japanese nation covered about 55%. Rapid economic growth, increase in affluent middle class, and income level enhancement were the common factor between these days China and past Japan. It as to show off their wealth and spending life. Most of the consumers in China are youngsters whose income are mostly from parents' allowance, meanwhile, Japanese consumers were mostly living on home in rent-free during 1990s and were able to buy the luxurious goods. (designer bauble)

The boom on Japanese lavishness was slowly fading away not only because of economy recession so called "lost decade" in the 1990s. It was also due to demographics. As population is getting more age, expenditures on luxury goods started to decline. It applies similar to China. Chinese economy now is slowing to show weak fundamental in many reasons (such as excessive corporate debts, U.S-China conflict), but it does not mean of slowing demand on the brands. Demographic challenge is the main reason. Chinese population has been dis-inflated due to the policy of 1 child starting from 2015. World Bank data shows about 1.7 children per family. The cost could be spent on supporting an older population in the future.

Also there are signals of danger of oversupply issue in China since the demand is quite robust for the next couple of years. Chinese spending by luxury companies surged 230% year by year in the second quarter (Gartner). That can lead to lose of preciousness and their exclusive image like example of Japan, which made luxury brands suffer.

However, brands cannot abandon Chinese market since the demand is sturdy, and population is huge. Luxury sales in Europe has been decreasing since consumers lost appeal for it. Now, they rely heavily on China which can risk investors on betting luxury brands higher.

Source : Forbes
https://www.forbes.com/sites/pamdanziger/2020/05/15/fate-of-luxury-depends-on-china-but-continued-success-there-is-not-guaranteed/#5e0b819c530c

Source: WSJ
https://www.wsj.com/articles/luxury-brands-dust-off-their-japanese-lessons-11598871601