Luxury shoes go a step too far for Gen Z in China as unemployment nears 20 percent

From $300 bucket hats to $900 running shoes and $700 t-shirts, the high-flying luxury sector frets at the appetite of cash-strapped Gen Z consumers for such ” desirable” purchases.

Executives are particularly concerned about a hit to young Chinese shoppers, not only because mainland China has been a key engine for the industry’s growth in recent years, but also because high-end consumers in the world’s second-biggest economy have been in a decade are younger than the global average of 38.

Young adults around the world have been “a very powerful factor in the growth of luxury goods over the past decade,” said Gregory Boutte, chief client and digital officer at Gucci-owner Kering.

Data this week showed that China’s economy slowed unexpectedly, prompting the central bank to cut interest rates, while macroeconomic trends disproportionately affected the additional funds that those born between 1996 and 2012 could use to enter the world of luxury.

While inflation and rising living costs are hitting young consumers’ discretionary income particularly hard in North America and Europe, China’s problem is different.

“Inflation is a big problem in the US… In China, the youth unemployment rate is alarming right now,” said Kenneth Chow, director of consulting firm Oliver Wyman.

Government data for July shows the unemployment rate among Chinese urban dwellers aged 16-24 at a record 19.9 percent, amid the impact of the Covid-19 lockdowns and a crackdown on big tech companies that traditionally hire hordes of graduates. will be further tightened.

“This may be the first time that many young adults (in China) are facing (such) economic impacts, so it will be a testing ground for how these consumers will spend on luxury items in the future,” Chow said.

“If there’s a recession, I’ll buy 100 percent less or maybe even stop buying altogether,” said U.S.-based luxury lifestyle and travel TikToker Jeffrey Huang, 28, who is responsible for his Louis Vuitton shopping sprees and -Hols shares with his 150,000 followers.

A recent study by Oliver Wyman showed some luxury brands are significantly lowering their sales expectations for the Chinese market in response to current conditions, with 80 percent of executives surveyed not expecting a “V-shaped” recovery this year. Oliver Wyman declined to name the brands surveyed.

Still, last month’s gains from companies like LVMH and Kering painted a picture of resilience. And big brands have signaled their intent to increase peak sales of $10,000 handbags and coats, rather than focus on luring new entrants down the ladder.

Chanel, Louis Vuitton and Dior have hiked prices on high-margin leather goods several times over the past year, with Chanel planning stores specifically for VIP customers.

“As prices go up, I’m becoming more and more cautious because I feel like I’ve spent a lot of money in the last year,” said Sara Yogi, a 26-year-old resident of San Francisco, California, adding that she buying a $2,900 Prada bag and a $3,200 Bottega Veneta bag, both of which are on her wish list.

This shift towards core luxury consumers also includes a cohort of affluent Gen Z consumers who are less likely to be impacted by inflation or unemployment. But the concern is for potential buyers, who should help Gen Z account for a fifth of all luxury goods spend globally by 2025.

And brands like Burberry have already noticed weakness in sales of runners and slides, products that Gen Z and millennial consumers have traditionally used as entry points into the world of luxury brands.

One way for luxury companies to continue attracting Gen Z consumers could be by offering sophisticated options at entry-level prices that can be worn often, said Yi Kejie, a 26-year-old marketing content manager.

Luxury brand cell phone cases, earrings, hair clips and perfumes are all popular with their Gen Z peers in China, Yi said, adding, “These are items with the lowest threshold for (them) to have this logo, this symbol.”

Some luxury labels, including Balenciaga and Dior, are using the Metaverse to engage teens and young adults, offering them affordable ways to power their virtual identities on gaming platforms like Roblox.

Virtual runners from brands like Gucci have already proven extremely popular at a price point of $17.99.

Whether in the real or virtual world, entry-level products require heavy creative investment.

“There’s this young group of consumers entering the market who require a lot of creativity at more affordable prices,” said Bain partner Claudia D’Arpizio.

However, there is good news for brands.

If they find the right range of entry-level products or if the economic situation of Gen Z consumers improves, the desire for luxury products will remain unbroken.

“Young people in China are passionate about luxury products,” Yi said. Luxury shoes go a step too far for Gen Z in China as unemployment nears 20 percent

Fry Electronics Team

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