China luxury brands gain share as western rivals face weaker sales

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China luxury brands gain share

Highlights

Kering’s stock dropped over 10% after reporting an 8% fall in Asia-Pacific retail revenue in Q3, with China a significant drag.
Bain estimates mainland China’s personal luxury market shrank 19% in 2024, but local handbag brands tracked by Bernstein grew sales about 51% annually since 2021.
Laopu Gold tripled sales last year and increased them another 61% in H1 2024, maintaining gross margin above 40% but trading at just six times forward earnings.

Domestic challengers expand in a shrinking market

As reported by Financial Times, China’s luxury market is showing an unusual split, with spending still falling overall while several local brands continue to post strong growth. That contrast is adding to pressure on European groups including Kering, Hermès and LVMH, which have all pointed to China as a drag on recent performance.

Kering’s stock slid more than 10% on Friday after the Gucci owner said retail revenue in Asia-Pacific fell 8% in the third quarter from a year earlier, with China a major headwind. LVMH said sales in Asia excluding Japan fell 5% excluding currency effects, while Hermès, despite its typically resilient wealthy customer base, grew less than expected and described conditions in China as very difficult.

Bain estimates mainland China’s personal luxury market contracted about 19% in 2024 and as much as 5% last year. Even so, Chinese luxury brands are still increasing sales and market share, with local handbag companies tracked by Bernstein growing sales by about 51% annually on the country’s leading ecommerce platform since 2021.

The trend extends beyond handbags. Chinese jewellery brand Laopu Gold more than tripled sales last year and increased them another 61% in the first half of this year, while keeping gross margin above 40%. Despite that growth profile, the company trades at about six times forward earnings, well below the valuations typically awarded to major European luxury houses.

Investor doubts deepen competitive risk

Investors are still debating whether the rise of homegrown Chinese luxury reflects a lasting change in consumer preference or a shorter-lived response to current economic conditions. The lower valuation of brands such as Laopu suggests markets remain unconvinced that strong domestic appeal will translate into durable pricing power or international relevance.

That caution may still understate the longer-term threat to western groups. Chinese luxury brands remain far behind European rivals in global reach, and reshaping consumer ideas of prestige can take longer in a traditional sector such as luxury than in faster-moving industries.

Still, the pressure facing European carmakers in China offers a warning for luxury companies that once viewed the market as a reliable engine of growth. Volvo shares fell as much as 30% on Friday after it reported collapsing Chinese sales, and the experience of automakers such as BMW and Volkswagen may now serve as a cautionary example for LVMH, Kering and their peers.

In our earlier article on China’s third-quarter growth outlook and fresh policy support, we noted that economists expected only a modest GDP pickup despite new measures such as targeted rate cuts, mortgage subsidies, and additional debt quotas. The piece also highlighted the economy’s uneven momentum, with exports and factory output offsetting weak household consumption and ongoing property-sector stress—conditions that continue to shape demand across discretionary markets, including luxury goods.

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