Luxury braces for a long Chinese winter

Europe’s biggest luxury groups are planning for a slump in Chinese demand that could last years. After a third quarter that reversed the recovery investors had expected, they are pruning store networks, and most are resisting discounts. The slump in China now reaches past the middle class, and two new pressures are compounding it. A Chinese tax on offshore trusts, in force since July, targets the wealthy clients who kept spending through the downturn. Riots across France this month threaten the Paris shopping trips that could offset weak sales in China. Hermès blamed a property market that is still declining and low confidence that keeps savings high, chief financial officer Eric du Halgouët said on October 22. New tax rules for Chinese taxpayers have added to the pressure, he said. Combined, the six largest listed European luxury groups — LVMH, Kering, Hermès, Richemont, Prada and Moncler — have lost about 251 billion euros ($280 billion) in market value this year, the Financial Times reported on October 25. LVMH, Kering and Hermès third-quarter results show Chinese luxury spending is falling LVMH said on October 12 that third-quarter revenue rose 1% on an organic basis to 18.5 billion euros ($20.7 billion). Fashion and leather goods, its biggest division, fell 5%. Chinese customers cut their spending on its fashion and leather goods brands by a mid-teens percentage, chief financial officer Cécile Cabanis said on the earnings call, and sales in mainland China dropped by double digits. The mid-teens decline counts Chinese customers wherever they shop; the regional figure counts sales in China. Both are falling. Watches and jewelry rose 6% at LVMH, as did wines and spirits. Selective retailing, which includes Sephora, grew 8%. Louis Vuitton also faced a consumer backlash in China after winning a trademark case this summer against Molly Tea, a milk tea chain whose four-petal logo a court found too close to the brand’s monogram flower. Cabanis said the dispute hurt sales at least at the start of the quarter, Fortune reported. Kering said on October 22 that third-quarter revenue fell 1% on a comparable basis to 3.35 billion euros ($3.74 billion). Gucci sales fell 6%, and sales at its own stores dropped 9% on weak traffic in mainland China and Japan. Kering closed a net 105 stores in the first nine months and now plans at least 125 net closures for the year, the company said. At Hermès, third-quarter sales rose 4.3% at constant exchange rates to 4.1 billion euros ($4.6 billion), the company said the same day, its slowest growth since early 2020. Leather goods rose 10.8%. Sales in Asia excluding Japan, Hermès’ biggest region at 40% of revenue, were flat at constant exchange rates. Prada said on October 22 that nine-month net revenue rose 15% at constant exchange rates to 4.54 billion euros ($5.1 billion), or 4% on an organic basis, which strips out Versace. Organic retail sales in Asia-Pacific rose 5%. Trading in the region held steady in the third quarter as weak store traffic in mainland China was offset by South Korea, Hong Kong and Macau, the company said. Moncler, based in Milan, said on October 21 that third-quarter revenue was flat at constant exchange rates, at 605.5 million euros ($676 million). For the Moncler brand, growth in Asia, which includes Japan and South Korea, slowed to 5% in the third quarter from 15% for the nine months; the company does not break out China. The brand’s sales in Europe, the Middle East and Africa fell 8%, which Moncler attributed to weaker local demand and fewer tourists, particularly from Asia. Analysts cut China luxury market forecasts as a U-shaped recovery turns into an L HSBC, Deutsche Bank and BNP Paribas each forecast in the spring that global luxury sales would grow about 5.5% to 6% this year, with the US and China driving an acceleration. BNP Paribas projected 6% organic growth for the market and expected China’s luxury market to grow about 10% a year from 2027 to 2031. In June, Bain & Company and Altagamma cut their 2026 forecast for personal luxury goods to 2% to 4% at constant exchange rates, from 3% to 5% in November, in their spring market study. September brought downgrades. Bernstein said sales at a sample of luxury malls in mainland China fell 12% from a year earlier in July, after broadly flat growth in the first quarter and low-single-digit growth in the second, Jing Daily reported. The firm later cut its LVMH price target to 480 euros ($536) from 520 euros ($581) while keeping an outperform rating. On September 22, RBC Capital Markets downgraded LVMH and Burberry to sector perform from outperform, saying consensus profit forecasts for next year assumed faster revenue growth and wider margins than current conditions support. Bernstein’s Luca Solca wrote in mid-October that the U-shaped recovery the firm had expected now looked more like an L, and that the industry should lower its growth expectations for the next few years. UBS cut Hermès to sell from neutral on October 5. Goldman Sachs expects steadier sales in China from 2027. Most luxury brands resist discounts in China Most groups are waiting it out. Kering is cutting its store count, while LVMH is leaving older, secondary malls in China for fewer, larger flagships in top-tier ones, such as its Louis Vuitton and Dior houses at Beijing’s Sanlitun Taikoo Hui. They are also leaning on jewelry, which has held up better than handbags and clothing, and on the US. Gucci is the exception on price. It has cut prices by 20% to 30%, Jing Daily reported. Hermès is going the other way: Bernstein said it is pushing further toward its wealthiest clients with higher-ticket categories and more VIP-focused service. With aspirational shoppers pulling back, others face the same choice. The test is whether they start discounting quietly, through private sales and outlets. Beyond pricing, Kering has hedged with a minority stake in ICCF, the parent of Shanghai-founded fashion brand Icicle, announced in April. LVMH is betting on design. It said the creative renewal of its houses was paying off, citing strong demand for Jonathan Anderson’s ready-to-wear and leather goods at Dior. China’s offshore trust tax puts pressure on the wealthy clients still buying luxury Analysts have mostly blamed the slump on China’s property market and weak confidence. The offshore trust tax adds a different kind of pressure. Since July 24, China has taxed the gains on assets transferred into an offshore trust, a structure that holds wealth outside the mainland, at 20%, and taxes the income those trusts generate at 20% a year, under rules issued by the Ministry of Finance and the State Taxation Administration. More than half of China’s super-rich use offshore family trusts to manage their wealth, according to a KPMG report cited by Reuters. Taxpayers had until October 22 to declare past liabilities without late penalties, covering assets placed in trusts since January 2023 and trust income received before 2026. Barclays expects authorities to extend scrutiny to other offshore income and, eventually, to inheritance. Bank of America analysts wrote that enforcement could expand to overseas employment income. Hermès cited the tax measures on its earnings call. Early data are mixed. Retail sales of gold, silver and jewelry by larger retailers fell 17.5% in August, according to the National Bureau of Statistics, while Swiss watch exports to China rose 15.8% the same month. It isn’t yet clear whether wealthy clients are cutting back or simply buying more discreetly. A stock market slump is now eroding the same clients’ wealth. China’s AI-heavy STAR50 index has fallen 40% from its July high, wiping out about $480 billion in market value, and the broader CSI 300 is down about 20% from June, Reuters reported. AI stocks account for 42% of the market value of mainland and Hong Kong shares, according to Goldman Sachs. Equity gains had been propping up spending at the top. Bain said a robust stock market helped mainland luxury sales recover in the second half of 2025, in its annual China report. Much of China’s new AI wealth was already paper wealth, locked in shares and spent quietly, Jing Daily reported in August. The sell-off shrinks it further. Chinese labels such as Songmont gain on Tmall as Laopu Gold growth slows Chinese brands are gaining ground. Bernstein estimates that five leading Chinese leather goods brands, Songmont, Qiuzhen, Grotto, Dissona and Bampo, grew their combined sales on Tmall, Alibaba’s premium shopping platform, by 51% a year from 2021 to 2025. Leading domestic players now account for about 18% of the platform’s sales, against 19% for the top overseas brands, the firm said. But even the strongest are slowing. Laopu Gold, the heritage gold jeweler, kept its store count flat at 45 in the first half and is upgrading existing locations rather than adding new ones, according to its interim results. Some of its stores began offering discounts in August, including 10% off in Shenzhen and up to 21% off some styles at Beijing’s SKP mall during Qixi, the Chinese Valentine’s Day festival. Across the wider market, local brands remain small. No Chinese label held more than 0.5% of China’s personal luxury market in 2025, while Western groups held about 63%, according to Euromonitor International. Paris protests put luxury travel shopping by Chinese tourists in France at risk Paris has problems of its own. About 550,000 people marched across France on October 17 against the cost of living and the state of schools, Interior Minister Laurent Nuñez said. The Interior Ministry later put arrests at about 2,400, the BBC reported, and a demonstrator died after a cardiac arrest in Paris, the city’s police prefecture said. Looters hit Louis Vuitton stores in Bordeaux and Marseille, and Dior, Celine, Kenzo, Moncler, Burberry and Rolex stores in Paris. Sephora closed its stores across France from 5pm that Saturday and kept its city-center stores shut on Sunday, Catherine Spindler, its president for Europe and the Middle East, said on LinkedIn. Hermès finance chief Eric du Halgouët said its Marseille store had been ransacked and would not reopen any time soon, and that windows were broken at stores in Lyon, Nantes and on avenue George V in Paris. He said it was too early to tell whether the violence would hurt spending by foreign tourists. About 410,000 people marched on October 24, the Interior Ministry said. The marches were largely peaceful, though clashes broke out after dark in Paris and Marseille and police detained close to 1,000 people. Luxury boutiques boarded up their windows, and a Rolex retailer and a De Beers store near Place Vendôme stayed closed. China’s Foreign Ministry and its diplomatic missions in France told Chinese travelers on October 19 to avoid protest areas. The embassy repeated the warning on October 22, ahead of the second weekend of marches. Long-haul tourists, luxury’s biggest spenders, are the likeliest to skip Paris Hotel bookings have already softened. Bookings at Paris hotels for stays from October 20 to 29 fell from 1 percentage point above 2025 levels to 0.2 point above between October 19 and 20, according to MKG Consulting. One day of rioting in central Paris led to cancellations of about 1% of the month’s bookings, said Didier Arino of consultancy Protourisme, who warned that repeated incidents would do more harm. Long-haul visitors, who spend the most, are the likeliest to stay away, tourism professionals told AFP. That leaves luxury brands exposed, and the shoppers most likely to stay away are the ones who spend most. More than half of Hermès’ sales in France go to tourists, its finance chief said in April. Hong Kong has issued a travel alert for France, and local agencies have cancelled tours and suspended promotions for packages covering the country. The last prolonged unrest offers a guide: in early 2019, Richemont blamed the yellow vest protests, which shut stores for six consecutive Saturdays, for weaker sales in Europe. Over the longer term, the risk is to the city’s reputation among Chinese travelers. Chinese brands with Paris boutiques include Icicle and Shang Xia, and Icicle’s parent, ICCF, also controls the French house Carven. What’s next More protests are planned. Yellow vest groups have called demonstrations for October 31. The CFDT, CGT, FO, Unsa and FSU union confederations have called a nationwide strike across the public and private sectors for November 5. Tapestry reports on November 5 and Ralph Lauren in early November, a read on US demand. Singles’ Day on November 11, China’s biggest online shopping festival, will show how Chinese and Western brands rank on Tmall. In Europe, Burberry reports first-half results on November 12 and Richemont on November 13. Bain and Altagamma usually publish their annual market study in late November; last year’s came on November 20. Global Blue’s October tax-free shopping data, due in the first half of November, will offer the first read on whether tourists, including Chinese shoppers, stayed away from France. Fresh stimulus from Beijing, including support for property prices, or a signal that it will not widen its offshore tax crackdown could change the outlook. Until then, most groups are betting that patience costs less than discounts. Gucci is testing the opposite.

Luxury braces for a long Chinese winter

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Luxury braces for a long Chinese winter

TUMI’s new growth playbook: From travel expertise to lifestyle performance