China’s Tax Crackdown Adds Pressure on Luxury Brands Amid Weak US Spending

China’s crackdown on wealthy individuals over unpaid taxes is adding pressure on luxury brands already facing geopolitical uncertainty and weakening consumer demand in the United States. Under Beijing’s new tax rules, wealthy Chinese individuals who used offshore trusts to shelter assets must declare and pay years of back taxes by October 22. The 20% levy could curb spending among ultra-high-net-worth consumers, who play a significant role in the global luxury market. Chinese shoppers account for roughly one-fifth of worldwide luxury purchases, but demand has weakened considerably since the COVID-19 pandemic.

 

The combined challenges are expected to weigh on third-quarter results as the $350 billion luxury industry struggles to recover from a prolonged slowdown. Shares of LVMH and Hermès have fallen around 40% this year, while Gucci owner Kering has declined 29%. Industry analysts report slowing growth in Chinese shopping malls, with smaller luxury labels such as Brunello Cucinelli and Loro Piana outperforming more conspicuous brands, including Louis Vuitton and Gucci. In the United States, credit card spending on luxury goods fell for a third consecutive month in August, according to data tracked by Citi, reflecting weakening consumer confidence. Meanwhile, high-end jewellery brands such as Cartier have shown greater resilience as wealthy buyers increasingly favour gold and other precious materials. Investors will closely watch upcoming earnings reports for signs of recovery in the sector.

 

LVMH is scheduled to report its quarterly results on Monday, with analysts expecting sales of €18.5 billion, representing a 1% increase from the previous year. Kering and Hermès are due to report on October 22. Kering has already warned of further contraction at Gucci, prompting several brokerages to lower their price targets. Industry experts suggest that China’s tax measures could affect consumer confidence beyond those directly targeted, potentially prolonging the luxury market’s downturn as brands contend with subdued demand across two of their most important markets.