From $300 hats to $900 sneakers and $700 T-shirts, the luxury sector is worried about the appetite of financially strapped Gen Z consumers for such “covetous” purchases, Reuters reported, citing news.ro.

Company executives are particularly concerned about the influence of young Chinese buyers, not only because mainland China has been a major driver of the luxury industry’s growth in recent years, but also because high-end consumers in the world’s second-largest economy are decades younger. than the world average of 38 years.

Young people around the world have been “a very strong driver of luxury growth in the last decade,” said Gregory Butt, director of customer and digital technology at the Kering group, which owns Gucci.

Data this week showed China’s economy unexpectedly slowed, prompting a rate cut by the central bank, and macroeconomic trends disproportionately affecting the extra cash that people born between 1996 and 2012 can use to enter the world of luxury.

While in North America and Europe inflation and the rising cost of living are particularly affecting the discretionary income of young consumers, China’s problem is different.

“Inflation is a huge issue in the US, a major factor that many luxury companies are paying attention to… In China, youth unemployment is currently a concern,” said Kenneth Chow, director of consulting firm Oliver Wyman. .

Government data for July showed unemployment among China’s urban 16-24-year-olds at a record 19.9%, exacerbated by the impact of COVID-19 restrictions and a crackdown on big tech companies that have traditionally hired many graduates .

“This may be the first time many young people (in China) are experiencing (such) economic exposure, so it will be a testing ground for how these consumers will spend on luxury items in the future,” he said. Chow. .

“If there’s a recession, 100% I will buy less or maybe even stop,” said Jeffrey Huang, a 28-year-old American who shares his lifestyle and travels on TikTok.lux to his 150,000 followers.

A recent study by Oliver Wyman found that some luxury brands are significantly lowering their sales expectations in the Chinese market in response to current conditions, while 80% of executives surveyed do not expect a “V-shaped” recovery this year.

Oliver Wyman declined to name the brands it investigated.

However, earnings released last month by companies such as LVMH and Kering painted a picture of resilience in the face of headwinds as luxury goods makers took advantage of a post-pandemic spending spree by their wealthiest clients.

And major brands have said they intend to increase sales of $10,000 handbags and $5,000 apparel rather than focusing on attracting new entrants in the lower segment.

Chanel, Louis Vuitton and Dior have raised prices on high-margin leather goods several times in the past year, and Chanel is planning stores aimed at VIP consumers.

“As prices go up, I’m more cautious because I feel like I’ve spent well over the last year,” said Sarah Yogi, 26, of San Francisco, California, adding that she may opt out of shopping for a $2,900 Prada bag and a $3,200 Bottega Veneta bag, both of which are on her wish list.

This shift to mainstream luxury consumers also includes a cohort of affluent Gen Z consumers who are less likely to be affected by inflation or unemployment.

But potential buyers, who were expected to help Generation Z account for a fifth of all luxury spending worldwide by 2025, are worrying.

And brands like Burberry have already seen weakness in sales of athletic shoes, products that Gen Z and consumers have traditionally used as an entry point into the world of luxury brands.

PLAN B FOR GENERATION Z?

One way luxury goods makers can continue to appeal to Gen Z consumers is to offer attractive entry-level prices that can be worn often, said Yi Keji, a 26-year-old content marketing manager. years

Luxury mobile phone cases, earrings, hair clips and perfumes are popular among her fellow Chinese Generation Z, Yi said, adding: “These items have the lowest threshold to have this kind of logo, this badge.”

Some luxury brands, including Balenciaga and Dior, are using the metaverse to appeal to teenagers and young adults by offering them affordable ways to configure their virtual persona on gaming platforms such as Roblox.

Virtual sneakers from brands like Gucci have already proven extremely popular at $17.99.

Whether in the real or virtual world, entry-level products require a high level of creative investment.

“There’s a younger demographic coming into the market that needs a lot of creativity at more affordable prices,” Bain partner Claudia D’Arpizio said, adding that not all brands are ready for it. However, there is good news for brands.

If they find the right entry-level product offering, or if the Gen Z consumer’s economic situation improves, the desire for luxury goods will not diminish.

“Young people in China are excited about luxury goods. Restrictions or temporary unemployment will not change their long-term preferences,” said I.