It’s not a rebound. It’s the great China luxury market reset.
China is facing a "peaking power" scenario where Gen Z is economically squeezed and delaying their entry into the luxury market.
Last Updated: Feb 12, 2026, 18:17 IST9 min
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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 The permission that once allowed a manager to justify a $5,000 Veblen good on a $4,000 salary has been revoked.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.
India is Not China 2.0; China is Not Even China 2.0
Unlike India, China’s demographic tailwinds have turned into headwinds.
• 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.
High Youth Unemployment and the "Lying Flat" Phenomenon
Economic malaise has hit Chinese Gen Z harder than other demographics.
- Economic Pessimism: For the first time in a generation, citizens report their lives are getting worse year-by-year.
- "Lying Flat" (躺平 Tang ping): Youth unemployment remained elevated at 16.5% in late 2025. This has fueled the "lying flat" phenomenon, where educated youth cannot find commensurate jobs and are opting out out of the "rat race" and status consumption.
- Delayed Entry: Younger consumers have delayed entering the luxury category, contributing to a 20-million-person contraction in the global luxury client base in 2025.
A Shift from "Status" to "Value" and “Expression"
While Indian Gen Z is driving spending on fashion and lifestyle, Chinese Gen Z is recalibrating how they spend, moving away from traditional luxury toward value-driven alternatives.
- Rejection of Price Hikes: Iconic bag prices surged 50–70% since 2019, while hero-bag innovation dropped by 70–80%. Gen Z feels the "price-to-value equation" is broken.
- The Rise of "Premium": Growth is shifting to the Premium segment (RMB 4,000–6,000). Brands like Coach (which grew followers by 34% on RedNote) and Longchamp are thriving because they offer "expressive luxury" at accessible price points.
- Domestic & Secondhand: China’s secondhand luxury market grew 15–20% in 2025. Consumers are also flocking to domestic brands like Songmont, which offer culturally resonant aesthetics.
The Demographic Inversion: Beyond the Hype
Forget Gen Z.
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.
Behind the cloud: One silver lining
90% of top customers, defined by Bain & Company, as those spending over €20,000 (approx. RMB 150,000+) annually, still plan to maintain or increase spending. While the overall number of luxury consumers in China contracted by 20 million in 2025, these top Very Important Clients (VICs) stabilized their spending in absolute terms.
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.
The Death of the Aspirational Middle
Once a former engine of volume for global conglomerates, the 3,500 to 14,000 RMB price bracket is now a "ruin".
- The Grey Market Trap: Aspirational brands are being cannibalized by grey market channels where discounts are a structural expectation. For an iconic model like the Saint Laurent Le 5 à 7, the gap between official retail (18,800 RMB) and grey market prices widened to -36%. This isn’t just a pricing issue; it is a sign of demand fatigue where price hikes have outpaced consumer desire.
- Strategic Failure: Prada and Dior are now classified as "Cooling Incumbents," witnessing a softening of both social relevance and revenue.
- Threading the needle: Precision Premium with Songmont, Coach & Ralph Lauren
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.
- Ralph Lauren: Reported that its China sales grew more than 30% in the latest quarter. By leaning into the "Old Money" aesthetic at an accessible price point, they provide the "Social Uniform" for a cautious middle class.
- Songmont & Coach: Saw its China business grow 21% by successfully transitioning from an "outlet brand" to an authority on "Expressive Luxury," capturing younger consumers who are fleeing the staler, overpriced "Cooling Incumbents”. Meanwhile, local labels like Songmont are gaining market share by offering "true value" and modern utility.
The "Power Core" of HNWIs is doubling down on material assets.
- Hermès: While rivals Kering and LVMH saw double-digit drops in some divisions, Hermès outpaced the market with an 11.3% increase in Q3 sales. In Greater China, they remained resilient by focusing on a loyal, ultra-wealthy client base that treats Birkin and Kelly bags as asset-grade investments, not fashion whims.
- Brunello Cucinelli: The pioneer of "Quiet Luxury" reported Asia growth of 15.6% in late 2025, specifically citing "double-digit momentum" in China. They have successfully engineered a narrative of "Humanist Capitalism" that resonates with the current "Common Prosperity" ethos—offering status that feels "earned" rather than vulgar.
The Cultural Hype Machine: Miu Miu
While flagship label Prada saw a minor retail dip (-0.8% in Q3), its sibling brand is arguably the most successful "It-maker" in the world right now.
• 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.
Why studying Songmont's success matters
The rise of local disruptors like Songmont, is not merely about "cultural relevance", it is about Systemic Trust.
• 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.
Read the tea-leaves: The Firesale of DFS
For decades, Hong Kong (and later Macau) served as the "gateway" for mainland Chinese consumers to access Western luxury goods tax-free. It was the undisputed honey pot of global travel retail. DFS built an empire on the arbitrage between mainland China’s high luxury taxes and Hong Kong’s free port status.
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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