China is one of the most important markets in the world for luxury goods, which is why some high-end fashion brands are anxiously watching as the country’s GDP growth slows to its lowest level in decades.
Add in troubles for China’s stock market, an ongoing crackdown on corruption that’s put a significant crimp on lavish gift-giving among officials, and a growing tendency for affluent Chinese to buy their priciest goods outside the country, and you have the conditions for a contracting market.
According to a new report by Bain Consulting, China’s spending on luxury goods declined 2% in 2015, to 113 billion yuan ($17.2 billion). In 2014, by contrast, luxury spending decreased just 1%, Xinhua reported, while in 2013 spending was still growing, albeit at a slowed rate from previous levels.
The report gives an overview of the situation that luxury labels, such as Prada and Burberry, dealt with for much of the year. Earnings reports have been solemn affairs, and Burberry has had to seriously cut its costs to maintain profitability. According to Bain’s calculations, the categories that suffered the most were menswear, watches, and accessories.
The year ahead isn’t looking much better. “Outlook for 2016: No major changes are expected in the macro environment,” the report states.
But that’s not to say people aren’t buying. Prices are higher in China, and there’s concern about buying counterfeit products, so Chinese shoppers are simply doing more of their buying off the mainland, especially in Japan, South Korea, and Europe.
Overseas purchases by mainland Chinese rose 251% in Japan this year, according to Bain. In fact, the explosive Chinese shopping spree in Japan became Japan’s buzzword of the year. South Korea and Europe saw more modest increases—33% and 31%, respectively.
China’s government isn’t thrilled with these developments. Each purchase outside China represents tax revenue it’s not collecting, which is why the country has been lowering import duties and enacting harsher punishments for daigou, overseas agents who buy goods for Chinese customers and ship them back to avoid import duties. Bain estimates the daigou business shrank significantly in 2015, partly in response to government efforts but also because there are more online channels, such as JD Worldwide and Net-a-Porter, where shoppers can buy directly from overseas.
There are some hopeful signs, though. Burberry and Richemont both saw their sales grow slightly in mainland China at the end of 2015, and Italian luxury executives are optimistic about their Chinese businesses in the near future.
In the long term, experts still expect the Chinese luxury market to flourish as its middle class continues to grow.