China returns as engine of global luxury sector | WARC | The Feed

China returns as engine of global luxury sector

Chinese shoppers are expected to increase the demand for luxury goods by 20% in 2023, according to a new study from Morgan Stanley. 

The country is expected to make up 60% of the globe’s luxury growth by 2030, returning to a proportion last seen just before the pandemic.

Why it matters

China is expected to return to its status as luxury’s growth engine, but in a broader context of economic tumult that is slowing some other markets around the world, the full growth potential is far from guaranteed.

What’s going on

"China should become the industry’s growth engine from this year on, and we expect brands at the top of the luxury-goods pyramid to benefit the most," says equity analyst Edouard Aubin.

Following China, the Middle East is forecast to see 15% growth over the course of this year. The US, meanwhile, appears to be heading the other way, with an expected 1% dip this year following strong growth of 75% between 2019 and 2022. In Europe, analysts expect a 3% decline.

Who gains?

Europe’s prices can be up to 30% lower than in China or the Middle East, so it’s expected to reap much of that spending as the combination of a holiday and competitive prices are likely to attract Chinese luxury consumers.

This isn’t necessarily a good thing for those brands, however, as higher prices in China are also a source of higher margins, so it’s unclear whether a possible volume increase will mean the same for the bottom line.

What could go wrong

The global economy is experiencing shaky times, and China is no exception; housing market jitters could affect some of the wealthiest. Similarly, it’s unclear whether demand will quickly return to 2019 levels.

Source: Morgan Stanley