Chinese consumers, who have led to poor results for global luxury corporations, have recently shown a preference for domestic brands over traditional Europe-centered luxury labels. This is seen as a result of having less capacity to spend on expensive foreign luxury goods coupled with the "guochao (国潮, patriotic consumption)" craze.
Bloomberg said on the 16th (local time) that "China's luxury market of about $49 billion (about 71 trillion won) is changing," and reported that "expenditure on overseas premium brands has stagnated, while a clear trend has emerged in which consumers choose domestic brands when they spend big."
Bloomberg reported that in the local market, consumption of domestic brands is surging, including Laofugold, dubbed the "Hermès of the gold world" in China's jewelry market, Chinese bag brand Songmont, and premium cosmetics brand Mao Geping.
Analyzing data from Chinese data analytics firm BigOne Lab, Bloomberg found that five Chinese brands in handbags, apparel, perfumes, cosmetics, and jewelry posted faster sales growth over the past two years than seven overseas competitors. Songmont's online bag sales rose about 90%, while Gucci's online bag sales in China fell by more than 50%. Laofugold's e-commerce sales also jumped more than 1,000% in the first to third quarters of this year compared with two years ago.
This stands in sharp contrast to European luxury corporations struggling in the Chinese market. Even after the end of the COVID-19 pandemic, Chinese consumers have not actively returned to luxury spending, and the share prices of major luxury corporations have fallen sharply. LVMH is down about 30% from its 2023 peak, and Kering, Gucci's parent company, is down about 60% from its 2021 high.
On Chinese e-commerce platforms, cases are increasing in which sales of Chinese brands surpass those of foreign luxury brands. Laofugold recorded $630 million (about 919.2 billion won) in sales on Tmall in the 12 months through October last year, while French luxury jewelry brand Van Cleef & Arpels posted just $57 million (about 83.2 billion won), less than one-tenth of that.
Bloomberg took note of the fact that LVMH Chairman Bernard Arnault, who visited Shanghai in September, bought two Songmont handbags and even stopped by a Laofugold store. Bloomberg assessed, "It may seem like a trivial act, but the symbolism was great," adding, "Arnault, who has helped define the modern concept of luxury, toured boutiques that may now open the next chapter of luxury in China."
Price is cited first as a reason why preference for domestic brands has risen in China. As a real estate-driven economic slowdown drags on, consumers are turning to domestic brands that are more price-competitive than foreign luxury goods. On Chinese social media (SNS), the Songmont bucket bag, dubbed a "substitute" for the Hermès Picotin, is about $421 (about 610,000 won), only one-tenth to one-twentieth the price of a Picotin.
The guochao boom has also played a role. Young Chinese consumers have begun to value the pride in Chinese culture that underpins domestic brands over the symbolism of Western brand logos. Bloomberg said, "Brands like Songmont draw deep inspiration from China's history, art, and everyday life," adding, "Modern luxury can be 'Chinese.'"
However, Chinese brands still appear to have a long way to go before they can stand shoulder to shoulder with foreign luxury brands. Michelle Cheng, a retail analyst at Goldman Sachs, said there are few Chinese brands with annual sales exceeding 10 billion yuan (about 2 trillion won), noting, "Because the Chinese market is so large, companies can drive sales of 1 billion yuan, and further 3 billion to 5 billion yuan, by pushing popular products, but to grow beyond that requires strong management, capable talent, and a long-term vision."