China’s luxury market is undergoing a notable transformation, with affluent consumers increasingly favouring premium skincare, cosmetics and fragrances over traditional entry-level luxury goods such as designer handbags. Analysts say prolonged weakness in the property market and subdued consumer confidence have made shoppers more selective, placing greater emphasis on perceived value even within the luxury sector.
Recent earnings from global consumer companies suggest that China’s aspirational middle class is redirecting spending towards prestige beauty products, which remain more affordable than luxury fashion accessories while still offering premium positioning.
Beauty companies including Estee Lauder (NYSE:EL) and L’Oréal (EU:OR) have reported improving demand for their high-end beauty brands in China this year. By comparison, luxury groups such as Hermès (EU:RMS) and LVMH (EU:MC) have indicated that Chinese demand for luxury goods has remained broadly stable, with only modest signs of improvement.
“The aspirational (Chinese) consumer has not traded down. She has moved to the top of a category she can comfortably afford, instead of the bottom of one she cannot,” said Jacques Roizen, co-founder of Shanghai-based Foresight Performance Partners.
China’s Luxury Boom Gives Way to More Selective Spending
Following years of rapid expansion driven by rising incomes and a booming economy, China’s luxury goods industry experienced a sharp slowdown in 2024 as the property crisis weakened household confidence and discretionary spending.
Although sales recovered somewhat during the second half of last year, momentum has been uneven, with 2026 beginning on a softer note.
Jonathan Yan, a Shanghai-based partner at Roland Berger, believes consumer attitudes towards luxury brands are changing fundamentally.
“It’s a kind of paradigm shift,” said Jonathan Yan, a Shanghai-based partner at consultancy Roland Berger. “Younger consumers feel less attached to the idea of luxury brands, and I think the brands need to have something beyond a logo and craftsmanship to resonate.”
Research conducted by Oliver Wyman together with the Tax Free World Association illustrates this shift in spending priorities. Among affluent Chinese consumers, 37% said they planned to increase spending on prestige beauty products over the coming year, compared with only 4% who intended to spend more on leather goods.
According to Kenneth Chow, Principal at Oliver Wyman, the difference reflects both affordability and purchasing habits.
“Skincare is lower-ticket, frequently replenished, and easily justified as self-care and ‘self-investment’, so consumers keep buying even when they feel uncertain. Leather goods are the opposite: high-ticket, discretionary, and easy to postpone,” said Oliver Wyman principal Kenneth Chow.
Premium Beauty Brands Continue to Outperform
Luxury skincare has become one of the strongest-performing categories within China’s premium consumer market.
L’Oréal Chief Executive Nicolas Hieronimus said last week that the company’s luxury and dermatological skincare businesses are expanding by around 7% in China, representing a clear acceleration from recent quarters. He added that flagship brands including Lancôme and Helena Rubinstein are growing even faster.
The company also said China was the largest contributor to sales growth across its North Asia business during the latest quarter, with its Luxe division delivering 10% growth in the country.
Estee Lauder is similarly optimistic about the outlook. Earlier this year, Chief Executive Stephane de la Faverie said the company expects prestige beauty growth in China to accelerate during its 2027 financial year, forecasting growth in the mid-single-digit percentage range.
Luxury Fashion Faces a More Challenging Environment
The outlook remains less encouraging for luxury companies whose businesses depend heavily on leather goods and accessories.
Although brands such as Hermès and LVMH also operate premium fragrance and cosmetics divisions, skincare represents a much smaller part of their portfolios than it does for specialist beauty companies.
Executives at both Hermès and LVMH said recent trends in China have shown only limited improvement, reinforcing concerns that consumer confidence remains fragile despite government stimulus measures and stronger equity markets.
LVMH Chief Financial Officer Cecile Cabanis said spending by Chinese consumers was broadly unchanged during the first half of the year, while Gucci owner Kering (EU:KER) reported another decline in Chinese sales during the second quarter.
Kering is continuing to address weaknesses in its China strategy, although Chief Executive Luca de Meo acknowledged the increasing intensity of competition.
“This is becoming one of the most challenging and competitive markets in the world,” he said.
Consumer Behaviour Continues to Evolve
Hermès Chief Executive Axel Dumas also struck a cautious tone, saying the company had not yet seen convincing signs of a sustained recovery in China.
“I do not see any tremendous improvement,” he said, describing current trading conditions as stable rather than improving. Dumas also highlighted unusually low pork prices as an indicator of subdued consumer sentiment.
“I’m waiting for that rebound, which will serve as a good indicator of optimism and joy in life,” he said. “Because, ultimately, that’s what we aim to provide with our products.”
Roizen believes that even if confidence improves, China’s aspirational middle class is unlikely to return to purchasing entry-level luxury products at the same pace seen during the previous decade.
“The brands suffering most are the ones still waiting for that consumer to come back, which I don’t think is going to be a rewarding strategy,” he said. “When it comes to luxury, the Chinese middle class went from YOLO to YONO – you only need one.”
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