For Chinese consumers seeking luxury, prestige skincare is trumping designer bags as a prolonged property downturn and weaker confidence make price tags ever more decisive, even for premium goods.
Analysts say recent earnings show China's aspirational middle-class spending is shifting away from entry-level luxury goods toward categories like prestige beauty — luxury skincare, make-up and perfume priced significantly above mass-market cosmetics.
While beauty specialists like Estee Lauder (EL.N) and L'Oreal (OREP.PA) are reporting stronger sales of top-end lines in China this year, luxury groups like Hermes (HRMS.PA), famous for its Birkin bag, and Louis Vuitton owner LVMH (LVMH.PA) say demand is largely flat to slightly firmer.
"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.
EXPLOSIVE GROWTH FADES
After heady growth in the last decade as the economy expanded and incomes rose, China's luxury goods sector, from handbags to watches, saw a sharp downturn in 2024 as the growth slowed and a property market slump knocked consumer confidence.
Its recovery since has been choppy, with a pick-up in sales in the latter half of last year followed by a lacklustre start to 2026.
"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 from consultancy Oliver Wyman and the Tax Free World Association found "intention to spend" among affluent Chinese consumers was significantly higher for prestige beauty than for leather goods, with 37% compared to 4% saying they intended to spend more in the next year.
"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.
L'Oreal CEO Nicolas Hieronimus said last week luxury and dermatological skincare brands overall are growing at around 7% in China, significantly faster than in recent quarters, while some of his company's top-end marques, such as Lancome and Helena Rubinstein, are doing even better.
China was the key contributor to sales growth at the group's North Asia operations in the last quarter, L'Oreal said, with its Luxe premium business growing 10% in the country.
Estee Lauder CEO Stephane de la Faverie said earlier this year his company expects prestige beauty's growth to accelerate in the 2027 financial year, which started on April 1, with mid single-digit percentage growth expected in China.
SKINCARE THE MAIN DRIVER OF CHINA'S PRESTIGE BEAUTY SEGMENT
The picture was less encouraging for luxury brands that lean heavily on leather goods for growth.
While many of those houses, including Hermes and LVMH, have high-end perfume and cosmetic divisions of their own, they tend to have a much smaller share of the skincare offerings that dominate China's beauty market.
Hermes and LVMH executives said they had seen little improvement in Chinese demand in recent months, reinforcing the view that consumer confidence remains fragile despite government stimulus efforts and a stronger stock market.
LVMH finance chief Cecile Cabanis said Chinese spending was essentially flat in the first half, while Gucci owner Kering said its China sales were still down in the second quarter.
Kering is working to fix missteps in the group's China strategy in the past, but CEO Luca de Meo also underlined the challenges ahead.
"This is becoming one of the most challenging and competitive markets in the world," he said.
CHINESE CONSUMERS PAST THE 'YOLO' STAGE OF LUXURY SPENDING
Hermes CEO Axel Dumas said he did not see "any tremendous improvement" in China, describing the market as stable rather than recovering. He pointed to pork prices — "currently very low" — as an indicator of sagging 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."
But Foresight Performance Partners' Roizen said that improving sentiment will not bring the aspirational middle class back to entry-level luxury goods at scale, a key driver of the market during its boom years.
"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."
