Sep 21, 2022
Have luxury sneakers become too pricey for Gen Z consumers?
Sep 21, 2022
With bob hats priced at $300, sneakers at $900 and t-shirts at $700, the luxury industry is concerned that cash-strapped Gen Z consumers might not have an appetite for products like these.
These concerns are especially focused on young Chinese consumers. Not only because China has been one of the main growth drivers for the luxury sector in recent years, but also because consumers of high-end products in the world’s second-largest economy are younger than those in other countries. The global average age for luxury consumers is 38, but it is a decade less in China.
Young adults the world over have been “a major growth driver for [the luxury industry] over the last 10 years,” said Grégory Boutté, head of digital and customer relations at the Kering group, owner among others of Gucci.
Recent figures show that China’s economy slowed down unexpectedly in July, pushing the country’s central bank to lower interest rates, while the macroeconomic context is disproportionately affecting the funds that young people born in the early 2000s might use to access the luxury market.
In North America and Europe, the purchasing power of young people is mainly affected by inflation, but the problem is different in China.
“In the United States, inflation is a big concern, the main worry for a number of luxury corporations (...). In China, it is youth unemployment that is causing concern at the moment,” said Kenneth Chow of consulting firm Oliver Wyman.
According to Chinese government data for the month of July, the unemployment rate among young people aged 16 to 24 in China’s metropolitan areas was 19.9%, a record high, against a backdrop of renewed lockdowns to fight Covid-19 and a hiring slump by major technology groups, which usually recruit young graduates.
“This may be the first time that many young adults [in China] will be facing an economic impact, so it is necessary to monitor how their spending on luxury goods will evolve," said Chow.
“If there's a recession, I'll buy less, or I'll simply stop buying,” said Jeffrey Huang, a 28-year-old TikToker who shares videos portraying a lifestyle big on luxury and travels.
A Plan B for Gen Z?
A study by Oliver Wyman showed that some luxury labels are significantly slashing their sales forecasts for the Chinese market due to the current situation. The firm has refused to name the labels its study has focused on.
The results published by groups like LVMH and Kering showed a certain resilience in the face of strong economic headwinds, since some luxury labels benefited from a wave of post-pandemic spending by their wealthiest customers.
Priority has been given to consolidating sales of high-end handbags and coats, rather than striving to attract new consumers with entry-level products.
Luxury groups could continue to attract Generation Z consumers by offering products they regularly use at attractive prices, said Yi Kejie, a 26-year-old marketing content manager.
Smartphone cases, earrings, hair clips and luxury fragrances are products that are popular among Gen Z consumers in China. “For [young people], these are the most affordable products that give access to a certain logo, a certain icon,” she added.
Some labels, among them Balenciaga and Dior, are relying on the metaverse to appeal to teenagers and young adults. Virtual sneakers, like those commercialised by Gucci, have already met with great success.
Yet, whether virtual or real, entry-level products still require a significant design investment.
However, there is good news for labels: the appetite for luxury isn’t on the wane. “Young Chinese people are excited about luxury goods,” said Yi Kejie. “Neither lockdowns nor the unemployment rate will alter their preferences in the long run,” she added.
(Reporting by Casey Hall, Doyinsola Oladipo and Mimosa Spencer; French version by Camille Raynaud, edited by Jean Terzian and Kate Entringer).
© Thomson Reuters 2022 All rights reserved.