Luxury sales plunge in China as tax push hits rich shoppers

Luxury sales in China have plummeted more than 10% in July, according to industry data gathered by three research firms. This sharp decline is a significant setback compared to the slower pace seen in June and marks a stark contrast to the robust growth observed earlier this year. Major luxury brands such as LVMH's Louis Vuitton and Dior, as well as Kering's Gucci, Bottega Veneta, and Balenciaga, all experienced double-digit sales decreases, while Hermès transitioned from gains to declines. Chanel and Prada also witnessed a notable slowdown in their sales growth.

The decline highlights the uncertainty facing global luxury giants in one of their most crucial markets. China, once the driving force behind decades of luxury growth, has seen its wealthiest consumers tighten their spending due to economic challenges and intensified competition for high-net-worth shoppers. The slump is exacerbated by China's recent efforts to curb capital outflows and recover tax revenues, including stricter regulations on cross-border stock trading and demands for citizens to pay hefty levies on offshore assets and investment gains.

Market experts are expressing concern over the impact of these tax measures on the spending habits of high-income consumers, with many luxury executives expressing legitimate worry about the weakened wealth effect and the tightening tax environment for affluent customers. LVMH, Kering, Hermès, Chanel, and Prada have not yet responded to inquiries for comment on the matter.

China's new measures represent the most significant overhaul of its cross-border financial system in a decade, further restricting avenues traditionally used by affluent households to manage and diversify their wealth. This clampdown has contributed to wiping out last year's 28.3% rally in the MSCI China Index, which is now down 8.9% this year, ranking among the poorest performers among major global markets. Hong Kong's Hang Seng Index has also experienced a decline after strong gains in 2025.

The market downturn has further dampened consumer confidence, particularly in Macau, where casinos reported steeper-than-expected revenue declines in June and July, with high-rollers betting less and visiting the establishments less frequently. Robert Wu, CEO of Shanghai-based market data and research firm Baiguan, noted a correlation between the performance of the capital market and luxury sales over the past two years, attributing this correlation to the shifting of wealth into stocks and other financial assets by wealthy Chinese.

Stella Lin, a 37-year-old financial product salesperson in Shanghai, has halted discretionary spending due to the downturn. Her stock portfolio, accounting for over half of her invested capital, has plummeted, and she has refrained from purchasing luxury goods for several months. Previously, Lin would splurge during summer holidays, attending VIP events and buying designer handbags and clothing.

Now, she has lost her appetite for luxury shopping, expressing uncertainty about resuming such spending once the stock market improves.

The cautious behavior of clients like Lin has added to an overall gloomy outlook for China's consumer sector. Retail sales growth slowed to 0.6% last month, with big-ticket items including jewelry and cars among the worst affected, with sales plunging more than 10%. Billionaire Bernard Arnault's LVMH is grappling with the fallout from a trademark dispute with local beverage company Molly Tea, which, while the luxury giant won the trademark infringement case, sparked a social media backlash over accusations of cultural appropriation.

Luxury brands have also faced extreme weather conditions, heavy rainfall, and a surge in outbound travel during the July summer holidays, leading to weaker foot traffic and sales. August will be a critical test of consumer confidence, with Chinese Valentine's Day serving as a typically strong luxury shopping occasion. According to Foresight Performance Partners' Jacques Roizen, if brands cannot generate positive growth even with the tailwind provided by this significant event, it would be a strong indication of a genuine slowdown in the luxury market.