Luxury’s Trouble Getting Down With American Kids

Luxury brands have done a great job of attracting young Chinese shoppers. Cash-strapped U.S. millennials will be a tougher sell. Chinese spending on Gucci handbags, Burberry trench coats and the like has been surprisingly resilient despite the country’s weakening economy. That has buoyed the stock-market valuations of listed European luxury players this year. Bellwether stock

LVMH Moët Hennessy Louis Vuitton

LVMUY 0.48%

now trades for almost 25 times next year’s estimated earnings—close to 2018’s 15-year high. The Chinese are the most important luxury shoppers in the world, buying one-third of all designer goods sold last year. They are also unusually young: They start making purchases in their 20s, two decades earlier than U.S. consumers, according to Fung Business Intelligence.

For now, Chinese millennials show no sign of tightening their belts. That could be because their spending power is boosted by a wall of cash put aside by their parents’ generation. As China’s social welfare spending has been low by international standards in recent decades, the country has one of the highest household savings rates in the world at 46%—more than double the global average, data from the International Monetary Fund shows. The peculiar demographics created by the country’s one-child policy mean that many young Chinese are lavished with cash that they can spend on high-end clothing and accessories. Their monthly incomes are topped up by their parents, who also pick up the tab for tuition fees that are low by American standards.

A Prada store in the Wangfujing shopping area of Beijing.


Giulia Marchi/Bloomberg News

Right now, this is a very nice business for European luxury companies to be in. In the long run, however, their reliance on a specific age bracket of consumers in one country for the vast majority of their growth is far from ideal. U.S. consumers—the luxury industry’s second-most important clients, accounting for 22% of spending globally—might seem the obvious place for handbag makers to seek diversification. However, repeating their Chinese marketing success with debt-laden American millennials doesn’t seem realistic. The U.S. savings rate is just 8%, and outstanding student loans hit $1.6 trillion in the second quarter of 2019, according to data from the Federal Reserve Bank of St. Louis. The average U.S. student has borrowings of $37,000, diverting a chunk of graduates’ incomes toward servicing debt rather than buying the latest designer collections. U.S. millennials are also far more likely to be saving for a deposit for a house than their Chinese peers. Just 34% of people under the age of 35 own their home in the U.S. The figure for Chinese millennials is 70%, according to data provider Morningstar. China is still surprisingly hungry for haute couture. When its appetite eventually fades, the industry will find it almost impossible to replace. The demographics of China’s luxury market are as unique as its size. Write to Carol Ryan at

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