The recent decline in China’s luxury market has raised critical questions about the future strategies of luxury brands. A crucial factor is whether the sales drop results from an economic slowdown or a deeper shift in consumer attitudes towards luxury items.

Consumers in China have shown increasing pragmatism, even during prosperous times. For instance, Chanel’s iconic handbags, often seen as investment pieces, exemplify this trend. Since 2016, Chanel has significantly raised prices, with its medium classic flap bag doubling from $4,900 to $10,800. This strategy not only reinforces perceived value but also attracts speculators seeking to profit from resale. However, the brand must now navigate the complexities of a changing landscape.

Take Kweichow Moutai, a luxury liquor brand that previously saw exceptional price increases but now faces a decline due to over-speculation and market saturation. After a 358% rise in the price of its Feitian baijiu, a significant drop followed, revealing vulnerabilities that can afflict even the most prestigious brands.

Hermès has fared better than others, showing price resilience, especially in the second-hand market. This indicates that brands with a strong resale value may weather economic downturns more effectively than those heavily reliant on primary retail.

As luxury brands like Chanel and Hermès continue to increase prices, they must also manage their inventories carefully. The danger lies in cultivating consumer perceptions that luxury products are mere commodities rather than coveted investments. This delicate balance will define the luxury market’s trajectory in China as brands adapt to the whims of increasingly savvy consumers.