China's luxury demand recovery may remain elusive, forcing global brands to rethink growth: Bernstein report

New Delhi: A recovery in Chinese consumer demand is unlikely to provide a strong boost to the global luxury goods industry in the near term, with a prolonged economic slowdown, weak consumer confidence and pressure on household wealth likely to weigh on growth, according to a report by Bernstein.

The report said luxury companies may need to revise their growth expectations and focus more on affordability and value for money as Chinese consumers face economic pressures.

"The U-shaped recovery we were expecting looks much more like an L," Bernstein's global luxury goods analyst Luca Solca said, adding that "it would be judicious to revise down expectations for broader industry growth over the next few years".


The report noted that Chinese consumers remain important to global luxury demand, accounting for around 15 per cent to the high-30 per cent range of consumption for some companies covered by the analysts.

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The luxury industry grew by close to 8 per cent annually in the roughly 30 years leading up to 2019, with around 50 per cent to two-thirds of that growth, "according to some sources, came from Chinese consumers," Solca said.

He further highlighted that "it is probably prudent to assume that growth without a revival in Chinese demand would be roughly half of that rate-closer to 4% or 5% than to 7% or 8%".

The report attributed the weakness to falling property prices, elevated youth unemployment and slower wealth creation through real estate and financial services. It also flagged concerns that households were drawing down savings without a corresponding recovery in consumption.

It said exports remained one of the few areas supporting China's economy, reducing pressure on policymakers to shift towards a consumption-led growth model. Bernstein expects only incremental and potentially temporary stimulus measures unless economic conditions deteriorate further.

The report also warned that artificial intelligence and robotics could add to pressure on salaries and employment, particularly among white-collar workers.

Despite the slowdown, Bernstein said Chinese consumers were trading down rather than abandoning luxury goods. Brands may need to offer more accessible products and strengthen their value proposition without damaging their premium positioning.

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"Waiting for the macroeconomic setting to improve is not a strategy," the report said, arguing that companies need to address affordability and perceived value for money.

Bernstein said luxury brands that fail to adapt their pricing, product mix and offerings risk losing consumers, while the industry's growth outlook remains closely tied to whether Chinese household demand improves.