According to SCMP , French luxury group Kering closed two Gucci stores in Shanghai last month, after more than a decade of doing business at these locations.

Prada also closed its store at Shanghai Hongqiao International Airport after two years of operation. The luxury fashion brand closed eight stores in the fourth quarter of last year, according to data provided by industry tracker Linkshop.

The two stores are shutting down their luxury retail operations, involving brands such as Louis Vuitton, Chanel, Tiffany & Co and Bulgari.

Global luxury retailers are accelerating their retreat from China, closing stores in high-end shopping malls across major mainland Chinese cities.

Most brands have seen a sharp drop in sales in China, driven by a sharp drop in demand and more Chinese shoppers abroad, said Jelena Sokolova, an analyst at Morningstar.

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Many luxury brands close stores in China. Photo: SCMP

Luxury sales in China fell 18-20% last year, according to consulting firm Bain & Co. Jewelry and watches were hit hardest. Analysts warn the sluggish sales are likely to continue this year.

Unlike mass retailers like Nike and Li Ning, top luxury brands are cautious about opening online stores, said Vincent Li, head of research for North China at Savills. They are even more cautious about pulling back.

As retail suffers, property developers are also affected. Vacancy rates in prime locations are rising. Meanwhile, Chinese real estate is struggling through a long period of gloom.

The retail vacancy rate in 11 first- and second-tier Chinese cities is expected to rise to an average of 10.5% this year from 10.4% in 2024, according to property consultancy Savills.

Rental income from luxury mainland malls of Hong Kong-listed Hang Lung Group is expected to fall 4% in 2024 despite aggressive advertising of attractive rental rates.

Consumer preferences have also shifted away from traditional luxury goods, said Guo Shan, a partner at Hutong Research, an independent consultancy for multinational companies in China.

“Instead of buying luxury handbags, consumers seem to prefer sports or entertainment products,” she said. Instead of buying goods, people seem to prefer experiences.

Sokolova said that Chinese consumers can still use their huge savings to buy discretionary goods, unlike Westerners who have depleted their savings during the Covid-19 pandemic. Luxury spending in mainland China could recover by 20% this year.