For a decade, the Chinese middle class didn't buy a $3,000 bag because they were “rich”; they bought it because their $1.5M apartment in Shenzhen went up 15% YoY. Property was the psychological permission to spend future earnings. Today, with 70% of household wealth tied to a corrected real estate market and prices in major cities declining over 12% from their peak, that property mirage has evaporated. The permission that once allowed a manager to justify a $5,000 Veblen good on a $4,000 salary has been revoked.
China’s 2025 fiscal revenue drop, the first since 2020, signals the end of the "Aspirational Permission" era. As we approach mid-February and the 2026 Lunar New Year, the global industry faces a reckoning: the escalator has stopped.
For those in the boardroom, "waiting for the rebound" is a terminal diagnosis. While some look to Gen Z as a saving grace - noting India’s Gen Z spending is expected to hit $2 trillion by 2035, the youth boom narrative does not apply to China due to a fundamental divergence in demographics, economic confidence, and consumer behaviour. China is facing a "peaking power" scenario where Gen Z is economically squeezed and delaying their entry into the luxury market.
• Shrinking Workforce: China is no longer benefiting from the "demographic dividend" that fuelled its rise over the last 35 years. The country is projected to lose more than 70 million working-age adults over the next decade while gaining 130 million senior citizens.• The "One-Child" Burden: The current generation of young workers is a "tiny one-child generation" that must support a massive retiring baby boomer cohort. By the late 2030s, the ratio of workers to retirees will collapse to 2:1, placing immense financial strain on young consumers.
The most haunting data point of the current reset is not the 3-5% market contraction in 2025, but the demographic inversion. While brands exhaust themselves courting a Gen Z that is increasingly "lying flat" or exiting the market, with approximately 20 million consumers having already exited the luxury ecosystem, they are ignoring the only bastion of liquidity left: the high-net-worth female demographic: They are the real power core of the Chinese luxury economy.
While the industry chases "Hype" for 20-somethings, evidenced by influencer marketing, current sentiment indicates that 90% of current buyers plan to continue spending, but they are becoming more exacting. They don’t want "drops"; they want Asset-Grade Luxury. As stated before, jewellery has emerged as the clear winner here, with its decline narrowing to nearly 0% as consumers pivot toward wealth preservation and material worth.
Additionally, the average Chinese luxury consumer is roughly 28 years old, ten years younger than the global average, but their loyalty is flickering. Conversely, absolute luxury brands like Brunello Cucinelli reported double-digit growth in China for H1 2025, proving that those catering to the "ultra-premium" segment are effectively immune to the middle-class malaise.
Consequently, accounting for over 46% of total luxury goods spending in China, a significant increase from 30% in 2019, their relative importance has surged.
The data indicates that spending power is heavily concentrated in the Millennial generation, though a specific segment of Gen Z remains vital. Unlike older generations who may buy for status, this subset of wealthy Gen Z consumers are "more critical" and "less loyal." They evaluate brands based on cultural relevance and individual identity rather than just community status.
China’s secondhand luxury market grew 15% to 20% in 2025. This isn't a "green" trend; it is the middle class trading down to maintain the illusion of status. Brands that do not own their secondary markets will be cannibalized by them.
• Miu Miu: Posted a staggering 41% revenue surge in the first nine months of 2025. Their success in Asia-Pacific is driven by a "Creative Dynamism" that targets the Gen Z demographic through experimental aesthetics—proving that if you aren't an "asset," you must be an "experience" to survive.
This data confirms an inverse relationship: The brands currently losing are the ones who treated China as a Distribution Market (volume through more stores). The brands who are winning: Songmont, Hermès, Brunello, Miu Miu - treat China as a Selection Market
Songmont is an intellectual peer now. Bernard Arnault didn't visit their Shanghai store for the tea; he went because they have manufacturing proximity and a narrative that makes "Parisian Chic" look like a declining aesthetic authority.
• Songmont: No longer a "local alternative," Songmont is an intellectual peer to Western maisons. Bernard Arnault’s 2025 visit to their Shanghai store was a recognition of a brand that has successfully bridged manufacturing proximity with a holistic narrative. Their 2024–2025 launches (Yore, Shan, Gather) accounted for nearly 70% of their Tmall revenue, demonstrating a rapid translation of "brand heat" into commercial capture.
The survivors are those engineering desire through operational agility. Coach has pivoted to "Expressive Luxury," maintaining scale through legacy icons while strictly controlling the supply of runway novelties to preserve exclusivity. Longchamp has built a "Value Moat" by defending the price integrity of the Le Pliage Original as a high-trust entry point, while using leather collections to lift transaction values.
The most potent symbol of this shift is LVMH’s recent sale of DFS Hong Kong and Macau operations to a state-owned peer. In early 2026, LVMH agreed to sell these operations to a Chinese state-owned peer for approximately $395 million—a staggering drop from the $2.5 billion majority stake valuation in 1996.
This isn't just a divestment; it is a tactical amputation. It signals that Scale is no longer a defensive moat; it is a liability in a market where footfall is declining and "Travel Retail" is being cannibalized by a domestic market that now accounts for 65% of all Chinese luxury spending.
This definitively marks the end of the expansion-at-all-costs playbook.
And if Hong Kong is the past, Hainan is the present and future. The island province has been designated by Beijing as the world's largest duty-free market, directly cannibalizing Hong Kong's reason for existing in the retail space.
While DFS has tried to establish a foothold in Hainan, the playing field there is tilted heavily toward state-owned champions like China Duty Free Group (CDFG). By exiting Hong Kong/Macau, LVMH is implicitly acknowledging that the center of gravity for "offshore" Chinese spending has permanently shifted to Hainan, a jurisdiction where they will always be a secondary player to domestic giants.
To survive, the playbook must shift from Distribution to Distinction
By Jonathan Ho, Luxury Analyst, Academy of Luxury, ESSEC Business School
First Published: Feb 12, 2026, 18:32
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