From $300 (about R5,000) bucket hats to $900 sneakers and $700 T-shirts, the high-flying luxury sector is fretting over the appetite among financially stretched Gen Z consumers for such “aspirational” purchases.
Executives are troubled in particular by a hit to young Chinese shoppers, not only because mainland China has been a major driver of the industry's growth in recent years, but because high-end consumers in the world's second-largest economy are a decade younger than the global average of 38.
Young adults around the world have been “a very strong factor of luxury growth over the past decade,” said Grégory Boutté, chief client and digital officer at Gucci-owner Kering.
Data this week showed China's economy slowed unexpectedly, prompting a central bank rate cut, while macroeconomic trends are disproportionately affecting the extra funds that those born between 1996 and 2012 might use to enter the world of luxury.
Whereas in North America and Europe, inflation and a rising cost-of-living are hitting discretionary incomes of young consumers especially hard, China's problem is different.
“In the US, inflation is a huge issue ... In China, it's the youth unemployment rate that's alarming,” said Kenneth Chow, principal at consultancy Oliver Wyman.
Government data for July register the unemployment rate of China's urban population aged 16-24 at a record 19.9%, worsened by Covid-19 lockdowns and a crackdown on big tech firms that traditionally hired droves of graduates.
“This might be the first time that a lot of young adults in China are facing such an economic impact, so it will be a testing ground on how these consumers are going to spend on luxury items in future,” Chow said.
“If a recession happens, then I will 100% buy less or maybe even stop buying altogether,” said US-based luxury lifestyle and travel TikToker Jeffrey Huang, 28, who shares his Louis Vuitton shopping trips and hauls with his 150,000 followers.
Nevertheless, earnings last month from firms including LVMH and Kering showed resilience in the face of economic headwinds as they rode a wave of post-Covid spending by their wealthiest clients.
And big brands have signalled their intention to grow sales of $10,000 handbags and $5,000 coats rather than focus on attracting new entrants on to the bottom rung of the ladder.
Chanel, Louis Vuitton and Dior have raised prices on high-margin leather goods, with Chanel planning stores dedicated to VIP consumers.
This shift to focus on core luxury consumers also encompasses a cohort of wealthy Gen Z consumers less likely to be affected by inflation or unemployment.
But Burberry has already noted weakness in sales of sneakers and slides, products Gen Z and millennial consumers have traditionally used as their entrée into the world of luxury brands.
One way for luxury players to continue to attract Gen Z consumers may be to offer aspirational options at entry-level prices that can be worn often, said Yi Kejie, a 26-year-old marketing content manager. Luxury branded cellphone cases, earrings, hair clips and perfumes are popular among her Gen Z peers in China, she said, adding: “These are items with the lowest threshold for them to have that logo, that icon”.
Some luxury labels, including Balenciaga and Dior, are embracing the metaverse to seed interest with teens and young adults, offering affordable ways to kit out virtual identities on gaming platforms such as Roblox.
Virtual sneakers from brands such as Gucci have already proved wildly popular, with a price point of $17.99.
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