In the halcyon days of Madison Avenue (aka Mad Men), there was a piece of outerwear that announced to the world that you were a member of the “club”: the Burberry Kensington Trench Coat. That garment has an interesting history, and would have been impossible without Thomas Burberry’s invention of gabardine in 1879. This revolutionary fabric enabled the creation of the first comfortable raincoat known to man. Gabardine is a sturdy fabric that sheds water—a welcome replacement for waterproof coats made of rubberized cotton that caused the unfortunate wearers to sweat profusely—not a good look for a Madison Avenue account exec (or anyone else, for that matter). Today, the Kensington coat sells on Burberry’s web site for $2,590.00—which will either strike you as a hefty sum or a good investment, depending on what price you put on status.
There’s been some sweating of another kind going on in the luxury goods market of late— and not the type that can be remedied with a cotton towel or a good antiperspirant. To be perfectly frank, the current luxury market is in a slump for reasons that stretch from here to China.
Let’s talk about China. I don’t know about you, but I was surprised to learn that in 2023, close to a quarter of all the world’s luxury goods were bought by the Chinese. By and large, all those Louis Vuitton bags and elegant bottles of Christian Dior perfume were bought by upwardly mobile Chinese. And because upward mobility has itself stalled in the current Chinese economy, demand is soft.
The stats don’t lie. LMVH—owner of two of the world’s biggest luxury brands (Louis Vuitton and Christian Dior), has lost 30 percent of its value and finds itself at its lowest point in the last two years. Other luxury brands have followed suit. Prada, one of the most coveted, has seen a 25 percent decrease in its sales since May. Others, like Hermes, have fared better because they’re able to keep strict controls on supply. There are only so many Birkin handbags that Hermes is willing to produce in a year, so demand remains high and consumers have little choice but to pay full retail. (Damned if I could find a single Birkin 35 bag for sale today on the Hermes website!)
But there’s another and perhaps more insidious reason for the current softness in the retail market for luxury goods in China. In some ways it’s no wonder, because Chinese nationals pay almost 25 percent more for their Chanel bags in country than they would pay if they were shopping in Paris. (And let’s not exclude the oddest upscale item of all: the Japanese luxury toilet. A top-of-the-line model from Toto combines toilet and bidet into one unit, includes lights and an automatic air dryer, and sells for $22,000.00!)
Price inflation has given rise to a class of legal black marketeers in China called “daigou traders.” “Daigou” is a Chinese word that means “buying on behalf of.” Daigou traders scour the globe for the cheapest-priced luxury goods (what an oxymoron), ship them to China, and then resell them, not only making a healthy profit but also undercutting the price Chinese consumers would have to pay at retail. According to a recent report in the Wall Street Journal, on an annual basis, the Chinese daigou trade is a $81 billion business.
I find the psychology around buying luxury goods fascinating. We know that rich people buy them. Well-heeled ladies have been buying luxury handbags for years and then gifting them used to their grateful domestics when they’re tired or bored and need the newer model. The psyche of the Beijing middle management woman who will shell out more than a month’s salary for a Chanel bag is quite different. It’s more akin to those Mad Men trying to signal that they’ve arrived. And even if you haven’t arrived quite yet, your aspirational mindset is a powerful motivator. It is, in short, your “why to buy.”
So even though things are a little sluggish for LMVH right now, I applaud them for understanding what they’re selling, and it isn’t just handbags. For the aspirational class, they’re buying a lifestyle—or at least the appearance of one. In that regard, Louis Vuitton’s women’s video fashion campaign is spot-on. It plays like flipping through the glossy pages of Vogue’s September Issue—stunning young women, perfectly dressed with thousand dollar haircuts, stepping out of Porsches and striding elegantly against a backdrop of Parisian vistas. Of course there are nice shots of handbags too. But beyond product focus, this kind of execution paints a fantasy fashionscape that every upwardly mobile woman in China—or anywhere, for that matter—wants to be part of.
Honestly, rich people don’t think as much of their luxury goods. For them, a Louis Vuitton bag is standard equipment, as a canvas duffle bag is standard for a sailor. And the rich don’t need to be sold a lavish lifestyle. They already have one. For the aspiring, however, luxury is everything. It’s why they buy—even if it stretches their Birkin pocketbook.
Know what motivates your customer.
