The China Distortion: Why brands are misreading the luxury slowdown

By Daniel Langer, originally published in Jing Daily

Over the last weeks I had countless interviews with major global media outlets about the state of luxury in China. In a recent TV interview on the BBC on the global luxury market, I had another discussion on China. This reflects a sentiment of panic regarding China that luxury industry is currently experiencing. After years of being the reliable engine of double-digit growth, the market seemed to have stalled. Quarterly reports from major conglomerates are filled with euphemisms like “headwinds” and “softening demand.” The prevailing sentiment in boardrooms is one of confusion. Executives are asking why the Chinese consumer has stopped spending.

This is the wrong question. The Chinese consumer has not stopped spending. They have stopped behaving in the way Western brands expect them to.

We are witnessing a fundamental misunderstanding of the current market dynamics. The data appearing in recent reports, showing negative growth in Mainland China, is being misinterpreted as a catastrophic collapse of desire. In reality, it is a structural correction of three specific anomalies that distorted the market for the last five years. Brands that fail to recognize this distinction are making strategic errors that will cost them their future relevance in the region.

 

The repatriation mirage

The first misconception is the baseline itself. Between 2020 and early 2023, the Chinese luxury market experienced an artificial super-cycle. Due to strict quarantine measures and the cessation of international travel, luxury consumption was forcibly repatriated. Spending that would have normally occurred in Paris, Milan, New York, or Tokyo was trapped within Mainland China. This created spectacularly inflated domestic growth figures that many brands mistakenly engaged with as a new normal. After the pandemic everyone was talking about revenge spending, without grasping the underlying dynamics.

Since 2023, travel restrictions have lifted. The Chinese consumers are mobile again. Consequently, we are seeing a massive recalibration as consumption shifts back to international hubs. The “decline” in domestic China sales is, in part, simply the market returning to its natural state of global fluidity. Brands looking at their China P&L in isolation are missing the bigger picture: the wallet share is not necessarily vanishing, it is moving.

 

The maturity reality check

The second fallacy is the expectation of perpetual double-digit growth. For two decades, China was an emerging market. It is now a mature one. The days of easy growth, where a brand could simply open more stores in Tier 2 and 3 cities and ride the rising tide, are over.

This maturity is compounded by a sobering economic reality. The real estate crisis has fundamentally altered the psychology of wealth in China. For years, property was the primary store of value for the Chinese middle and upper class. With that asset class under immense pressure, the feel-good factor that fuels aspirational spending has widely evaporated. Clients are no longer buying luxury to project status in a booming economy. Instead, they are scrutinizing purchases through a lens of financial prudence.

 

The focus on investment value

This brings us to the most critical shift: the transition from consumption to investment. In a climate of economic uncertainty, the definition of luxury has changed. Clients are pivoting away from in-the-moment fashion choices and toward long-term assets.

This explains why certain segments, specifically high-end jewelry and investment-grade leather goods like Hermès, remain resilient while many aspirational fashion brands falter. The Chinese consumer is increasingly sophisticated. They are analyzing the resale value and longevity of a purchase. If a brand cannot prove that its products will hold value, it is dismissed. Many brands who forgot to focus on clarity of brand storytelling and long-term extreme value creation are not only paying a steep price today, but they have also already lost the confidence of Chinese shoppers for the future.

Additionally, luxury purchases are also moving from hard goods to experiences. During the pandemic, people bought products because they couldn't buy memories. Now, the experience economy is reclaiming its share of wallet and consequently many companies selling hard luxury goods and who were profiting from the one-time windfall in the pandemic feel the shift.

 

The rise of cultural confidence

Finally, Western brands are facing a new competitor: China itself. The era where “Western” automatically equated to “superior” is dead, just look at the German car industry. I warned back in 2019 that I am seeing in our data a significant shift in consumer preferences towards Chinese brands. At that time, many car managers dismissed the signals and relied on never-ending desire. Today, they pay the price of complacency.

I am seeing a surge in “Guochao” (national trend) not just as a fad, but as a permanent shift in consumer identity. Local brands are capturing market share because they offer better cultural relevance, faster innovation, and a deeper understanding of the local digital ecosystem. During a recent visit in Shanghai, I saw that Anta, the Chinese sportswear giant, was boasting a Chinese flag on a significant part of their merchandise. Chinese local brands create cultural capital and desire. In contrast, many Western brands continue to treat China as a remote ATM, exporting generic global campaigns without deep localization. They are finding themselves irrelevant. To the investors they sell it as “headwinds,” while the true reason is much more fundamental and homemade.

 

A roadmap for the new China

Navigating this new landscape requires a radical departure from the strategies of the last decade. Here is the roadmap for brands to survive the normalization:

First, stop chasing volume at all cost. You cannot discount your way out of a maturity crisis. Discounts are always the easy growth trap, they destroy brand equity long-term. Brands must pivot to value creation. This means fundamentals must be addressed now. China is the country of speed and wait and see means you will be gone in no time. If you are not being perceived as an investment asset and in tune with culture, you are selling a liability.

Second, audit your value deficit. Chinese clients are the most discerning in the world. If you raised prices by 50% over the last 2-3 years but the product quality and service experience didn't improve by 70%, you have a value deficit. You must close this gap immediately through hyper-physical experiences.

Third, localize or lose: Cultural respect is the new currency. This goes beyond Lunar New Year capsules. It requires a distinct brand narrative that honors Chinese heritage while maintaining your own codes.

Fourth, target your VICs (Very Important Clients) with extreme care. With the aspirational market pausing, the top 1% is the only safety net. But they are bored by mediocracy. They need money-can't-buy experiences, not just another VIP room.

China is far from being over. It is just growing up. The brands that level up and create extreme value in a sophisticated market will thrive. Those waiting for the party of 2021 to return will find themselves alone in the dark.


About the Author

Daniel Langer is the Founder and CEO of Équité, a global luxury brand strategy consultancy. He is Executive Professor of Luxury Strategy at Pepperdine University Graziadio Business School and NYU. After two decades of industry leadership, he founded Équité to bring academic rigor, proprietary research, and operational precision to the way luxury brands build equity, set prices, optimize their strategies, and deliver extraordinary client experiences. He and his team advise some of the most iconic luxury brands in the world across fashion, fine jewelry, watches, automotive, hospitality, airlines and private aviation, wealth management, and wellness. He is a sought-after global keynote speaker and leads executive masterclasses on luxury strategy. He serves as a board member of MOIQ Capital in Singapore. His education includes Harvard Business School, an MBA, and a Ph.D. in luxury management. Featured in the Wall Street Journal, Financial Times, New York Times, The Economist, Forbes, Vogue, and Robb Report. Follow him on Instagram, Linkedin and his substack. Visit his personal website.