Insights: China’s crackdown on luxury forces brands to rethink value

Luxury brands rely on exclusivity, craftsmanship, and a hefty price tag to maintain their coveted positions in the market.

In recent weeks, China has thrown a wrench into the gears of this high-end machine. Chinese manufacturers have been revealing the actual production costs of luxury items, which has forced a major shift in how consumers and brands view value, pricing, and authenticity.

It turns out that some of the most iconic luxury items on the market — Birkin bags, Louis Vuitton accessories, and Lululemon leggings — are produced for a fraction of what consumers pay.

As global trade tensions continue to heat up, especially between the US and China, this level of transparency is raising serious questions about the true cost of luxury. In turn, it challenges brands to adapt their value propositions in response to a rapidly changing marketplace.

Consider the Birkin bag, which carries a retail price tag of $34,000. According to Chinese suppliers, the actual production cost is just $1,400.

Similarly, Lululemon leggings, typically priced at $100, cost only a few dollars to make, ranging from $5 to $6.

The impact of such revelations is profound, fundamentally questioning the very definition of luxury for consumers, and potentially forcing a reset in how luxury brands position themselves moving forward.

Shifting views on exclusivity and brand identity

The idea that only a select few could afford certain items elevated luxury brands to the realm of status symbols.

Over time, these brands carefully constructed their identity around rarity — items that could not be easily replicated, creating an aura of prestige that was often worth the high price. But now, with China’s recent campaign, we are seeing how some of these claims might be less substantial than once believed.

When it is revealed that 80 per cent of the production for iconic luxury brands such as Hermes, Gucci, and Prada takes place in China, with items often labeled “Made in Italy”, it forces consumers to question what makes these items truly valuable. This seismic shift is especially significant for the Middle East, where luxury spending is a cornerstone of consumer culture. Therefore, the focus of brands can no longer just be on a glamorous logo or a fancy label.

It has to go deeper into authenticity, materials, and ethical production practices — something younger consumers, especially Gen Z, have begun to demand.

How luxury brands must adapt

Luxury brands should now rethink their entire unique selling points. The days of simply relying on the mystique of exclusivity are probably over. Luxury brands will now need to adapt to the growing demand for transparency, sustainability, and authenticity.

While brands like Louis Vuitton and Gucci have yet to directly address the specific campaign launched by Chinese manufacturers, they have been adjusting their strategies in response to broader market conditions. Over the past few years, we’ve seen a greater focus on storytelling, particularly around craftsmanship, sustainability, and ethical sourcing.

This movement gained momentum in 2024, when it was revealed that Dior’s $2,780 bags, long marketed as symbols of exclusivity, were produced for just $57.

In a market where consumers are more socially conscious than ever before, brands must double down on their promises and create new narratives that align with the evolving consumer mindset.

Brands that have relied on traditional marketing and celebrity endorsements must now lean into creating meaningful connections with their consumers.

Sell a high-priced handbag with an ad campaign featuring a supermodel will no longer cut it. The future of luxury lies in creating value that resonates with consumers on a deeper level — offering products that aren’t just aspirational, but also ethically sound and transparently priced.

The future of luxury consumerism

Luxury brands will have to respond to a new generation of consumers who value sustainability over logos, authenticity over exclusivity, and ethics over price tags. Gen Z and Millennials are driving this shift, and their buying behaviour will determine the future of the industry.

In 2024, Gen Zs and millennials accounted for 45 per cent of global luxury purchases, despite representing just over 2 per cent of the total customer base, according to Bain & Company.

Gen Zs and millennials have grown up with access to information at their fingertips. They are well-versed in the environmental and social impact of their purchases, and they’re increasingly choosing to support brands that align with their values. For them, luxury is no longer just about price — it’s about purpose.

Research from the World Economic Forum highlights that over a third of Gen Z consumers choose brands that demonstrate environmentally sustainable practices, and 28 per cent have ceased purchasing from brands with poor ethical or sustainability values.

A study by Savanta indicates that 60 per cent of consumers aged 18-34 prioritise a brand’s authenticity and adherence to its values when making purchasing decisions. This trend underscores a generational shift towards conscientious consumption.

Luxury’s new frontier lies in experience, not ownership

For luxury brands, the ultimate challenge lies not in lowering prices or increasing accessibility, but in discovering new ways to redefine exclusivity.

In the age of mass production, the new luxury is not ownership, but experience. We are on the verge of a shift in branding, moving from offering expensive, mass-produced goods to providing experiences that are unique, memorable, and deeply personal.

The exclusivity will eventually come from the personal connections brands build with consumers, the stories they tell, and the memories they create.