Gucci, Prada shut more China stores as luxury spending slows

French luxury conglomerate Kering recently closed two Gucci stores in Shanghai after operating there for over a decade.

Prada also ended its two-year presence at Shanghai’s Hongqiao International Airport.

These closures add to eight luxury store shutdowns in the fourth quarter of last year and two in the previous quarter, involving brands like Louis Vuitton, Chanel, Tiffany & Co, and Bulgari, according to data from industry tracker Linkshop.com as cited by SCMP.

People walk past a Gucci shop in a shopping mall in the Lujiazui financial district in Shanghai on June 5, 2024. Photo by AFP

"Most brands have seen steep declines in sales in mainland China, not only affected by [depressed] consumer sentiment at home but also by Chinese nationals shopping more abroad," said Jelena Sokolova, a senior equity analyst at investment research firm Morningstar.

Weaker domestic spending and increased overseas shopping likely contributed to an 18-20% drop in China’s luxury sales last year, reverting to 2020 levels, consultancy Bain & Co reported in January.

Jewelry and watches were hit hardest as consumers shifted their preferences toward value-preserving assets, it said.

2025 is expected to be flat in the mainland market, with a challenging first half and an improving second half, driven by the positive impact of economic stimulus measures in China, it added.

Luxury retailers have seen their investors’ confidence eroding in recent years. Share prices of most luxury brands plummeted last year, with Kering dropping 39%, followed by Burberry (down 30%), LVMH (down 13%), and Moncler (down 7.8%).

Buyers were financially stretched thin and having a change of heart in terms of how they spent their money, according to an analysis by wealth magazine Fortune.

"The new Louis Vuitton bag or flashy Versace dress was no longer as appealing—they wanted to be more practical and invest for the long run."

Affluent Chinese consumers have also changed their priorities, opting to invest in luxury real estate or unique experiences rather than spending on the newest fashion trends.

Since 2019, luxury prices have surged significantly without a matching rise in innovation, service quality, or the overall appeal that luxury brands are expected to deliver, according to Marie Driscoll, an equity analyst specializing in luxury retail.

"This year, that really hit consumers, and we felt the full impact."

Retail trouble

The retail sector’s struggles spell trouble for China’s retail property developers and landlords, who are already grappling with a prolonged industry downturn, rising vacancy rates, and oversupply.

Retail vacancy rates in 11 mainland cities will rise to 10.5% on average this year, up from 10.4% in 2024. During the pandemic lockdowns in 2022, the average vacancy rate hit 11.4%, the highest since Savills began tracking the data in 2012.

Hong Kong-listed developer Hang Lung Group reported a 4% decline in rental revenue from its mainland luxury malls in 2024 due to aggressive price promotions.

The occupancy rate at its Wuhan branch also fell to 85% from 86% in 2022, according to its annual report.

Despite these challenges, Morningstar’s Sokolova noted that rents have not dropped significantly, putting pressure on luxury retailers’ operating costs.

But thanks to Chinese consumers’ substantial household savings, Sokolova predicts a 20% recovery in mainland China’s luxury spending this year.

Vincent Li, head of research for north China at Savills, noted that top luxury brands are highly cautious about opening brick and mortar stores and even more so when closing them.

"If they are retreating, it indicates significant hurdles they cannot overcome," he told SCMP.

Guo Shan, a partner at Hutong Research, an advisory firm for multinational companies in China, added that consumer preferences are shifting away from traditional luxury goods. "Instead of luxury bags, consumers are leaning toward sports or entertainment products," she said.

"People seem to prefer experiences over goods."