Resetting China’s Luxury Compass

HONG KONG, China — Alarm bells have been ringing for quite some time. That an overreliance on China might one day prove problematic was clear the moment that the country became the world’s largest luxury market. But few could have predicted the series of events that now has the luxury industry plotting a new course toward China, while searching for safer passage through the choppy waters of this heaving market.
The storm hit in 2014 when luxury spending contracted for the very first time in mainland China. As the economy began to slow, brands like Louis Vuitton quietly shuttered stores and analysts predicted that Prada, Burberry and other brands faced jeopardy in Hong Kong as mainland shopper numbers dwindled. Exacerbated by China’s ‘Black Monday’ stock market crash — an event last summer that wiped trillions of dollars off global financial markets — these already worrying signs were soon followed by a slump in luxury stocks. Investors got spooked and the collective mood took a turn for the worse.
In August, the Savigny Luxury Index, an index compiling the stock price of major luxury groups including LVMH, Kering, Richemont and Hermès, recorded its worst monthly drop since the global banking crisis in 2008. More trouble was yet to come. Volatility shook the industry hard this month when the Chinese government twice froze the Shanghai stock market in order to prevent panic selling of stocks that were in free-fall. Now, it has come to light that 2015 was the year that China's economy grew at its slowest rate in 25 years.
While the anxiety caused by these events remains as strong as ever, most experts agree that China’s luxury market still has both short and long-term potential. China certainly hasn't gone from vogue to rogue, but no one is certain how much more stress the market can take. With so much instability in the air, just how concerned should the luxury industry be about China’s ‘new normal’ and how can they point the compass toward growth during an economic slowdown?
BoF and fashion industry leaders explore the future of the Chinese market at BoF VOICES x Hong Kong event in December 2015.