Once seen as a dream market with incredible potential, China has become a commercial nightmare for a long list of foreign brands. From tech giants and airlines to luxury fashion houses, key overseas players are struggling like never before as a perfect storm of factors upends their business in the country.
Read on to discover why China is proving such a challenge for these consumer powerhouses and find out which famous brands are suffering the most.
All dollar amounts in US dollars
When it comes to China, foreign brands are facing headwinds from all directions. With the nation's economy spluttering, the Chinese public has tightened their belts. Amid sluggish growth, a severe property market crisis, and high youth unemployment, spending is down across the board.
Rising competition from domestic brands is another serious challenge. Homegrown rivals tend to beat their global counterparts on price, making them increasingly attractive to the many Chinese consumers cutting back their spending.
As if the stumbling economy and fierce domestic competition weren't enough to contend with, foreign brands have a whole host of other problems to contend with in the People's Republic.
Geopolitical tensions between China and the West are hammering business for some. Meanwhile, rising nationalism is prompting many in China to shun foreign names in favour of local alternatives, and there have even been mass consumer boycotts of certain global brands.
The trend even has a name: Guochao, which means "National Tide". It's also been called "China Chic". Particularly popular among Chinese Gen Zs and Millennials, it reflects a growing preference for Chinese brands, artwork, and culture.
Another perplexing problem for overseas brands, specifically those in the luxury sector, is a move away from flaunting wealth and flashy labels, which are now regarded as decadent and vulgar. Many big brands have quit the Chinese market of late, and the situation is looking increasingly bleak for those staying put...
Take Samsung. The South Korean electronics titan is now the world's smartphone leader after overtaking Apple earlier this year. Yet its share of the Chinese market has nosedived, from 18% a decade ago to just 0.7% in February. This is despite heavy investment and clever localisation of its products. The top smartphone brand in China is now the homegrown Vivo, which, coincidentally, has an 18% share.
Mounting domestic competition and the high cost of Samsung's wares are partly to blame, but much of the company's struggle in China is due to geopolitics. As reported by DigiTimes Asia, Samsung has been the target of Chinese boycotts of South Korean firms as a result of the controversial deployment of a US missile defence system in South Korea in 2016. Samsung has also been hurt by the patriotic "Buy Chinese" movement that arose in 2020 as relations between China and the US soured.
Western airlines are leaving China in their droves. In May, Qantas threw in the towel when it announced plans to scrap its sole route to Mainland China, Sydney to Shanghai.
Qantas enjoyed a heyday in Mainland China during the late 2010s when it operated services to Shanghai and Beijing and additional routes in collaboration with Chinese partners. However, demand crashed during the COVID-19 pandemic and never recovered due to China's economic downturn. According to industry website AirlineGeeks, geopolitical tensions and strategic errors could have contributed to Qantas' exit, along with a decision by the Australian regulator to prevent the airline from renewing its contract with its last remaining local partner.
Virgin Atlantic followed suit in July when it ended its 25-year London Heathrow to Shanghai service, citing “significant challenges and complexities”. The airline reported losses of $178 million (£139m) last year, with the poorly performing Chinese route no doubt contributing to the shortfall.
Like most European carriers, Richard Branson's airline is barred from Russian airspace, forcing longer, more costly routes to China. Chinese carriers, on the other hand, can still fly over Russia and now have a massive competitive advantage. Given the absence of a level playing field, it's little wonder Western airlines are bailing.
Foreign prestige beauty brands are having a tough time in China too as cash-strapped shoppers dial back on premium purchases. Meanwhile, local C-Beauty brands, which are budget-friendly and targeted at the domestic market, are flourishing.
Over the past couple of years alone, 20 overseas cosmetics brands have left China due to poor sales, including Maybelline and Innisfree, according to website The China Academy. Estée Lauder is staying put. But in May, its parent company, which counts Clinique, MAC and other big names in its portfolio, had to lower its sales outlook for the year due to poor demand in China. The Estée Lauder Companies Inc share price has taken a battering and is down 32% since the start of January.
Japanese beauty brand Shiseido is also flagging. Its parent firm, which owns NARS, Clé de Peau Beauty, and other prestige names, has been reporting negative growth in China, contributing to a 40% drop in overall earnings in 2023.
Shiseido's situation is especially dire, exacerbated by a Chinese consumer boycott of Japanese products triggered by Japan's release of treated radioactive water from the stricken Fukushima plant last August. Sales plummeted in the initial month of the boycott and have continued to flounder since.
Starbucks is more exposed to China than many Western firms. With over 7,000 outlets, the vast country is the coffee chain's second most important market after the US and accounted for around 12% of its global revenue last year – which makes the brand's problems there all the more concerning.
Sales fell by 14% in the most recent quarter. According to Starbucks CEO Laxman Narasimhan, the US chain is feeling the effects of weak consumer spending as the Chinese economy declines. Local competition has intensified, particularly from Starbucks' Chinese arch-rival Luckin Coffee, and a price war is raging. Maintaining its market share and profitability in China is likely to be and uphill battle for the American brand in the future.
Danish jewellery brand Pandora was riding high in the Chinese market in the late 2010s. In 2019, the world's biggest jeweller by volume turned over $283 million (£220m) in China, representing 9% of its global revenue. But last year, sales fell to $82 million (£64m), with China now making up just 2% of Pandora's total turnover, despite a similar number of physical stores (243 compared to 240 in 2019).
Chinese consumers, especially Gen Z, are avoiding Pandora's sterling-silver charm bracelets for high-karat gold, particularly in the form of tiny beans, which make for reliable nest eggs in uncertain times. As highlighted by consumer trends website Jing Daily, Pandora went overboard with product releases, losing its cachet and overwhelming customers with too much choice. As younger customers abandon the brand, Pandora has exacerbated the situation by focusing too heavily on collaborations with the likes of Disney and Marvel, further alienating their more mature clientele.
Nike's sales in China increased by 8% last year, but the sportswear titan's market share is at risk of being gobbled up by Adidas and local players Anta and Li-Ning, according to Jing Daily.
Adidas has enjoyed a bounce off the back of the craze for its Samba sneakers in China – Nike has no such equivalent star product – while Anta and Li-Ning are capitalising on the Guochao trend for homegrown brands. That said, Nike isn't taking the onslaught lying down. Its efforts to fend off the competition include opening a flashy flagship store in Beijing, collaborations exclusive to the Chinese market, and holding its second Nike On Air event in Shanghai.
Western fast-fashion and mid-range clothing brands are feeling the pinch in China as frugal consumers embrace Guochao and turn to cheaper local alternatives such as Shein and Tabao.
German-born brand Esprit reported losses of $243 million (£189m) globally in 2023. The retailer has suffered harshly in Europe, where it's since declared bankruptcy. However, the Chinese market has been so difficult that the brand's parent company is attempting to offload its entire Greater China operations, according to industry websites Just Style and FashionUnited.
ASOS' short-lived misadventure in China ended in 2016 when the British online fast-fashion retailer shuttered its Shanghai warehouse and pulled out of the country. Lack of brand recognition and intense competition from Alibaba and other local rivals were among the factors that led to ASOS' demise in the People's Republic. But though it no longer operates in the country, ASOS has one very big China problem in 2024: Shein.
The fast-fashion juggernaut is stealing away ASOS' Gen Z customers and its market share. ASOS sales have dropped by a fifth this year, while Shein, which offers a higher turnover of more affordable styles, is reporting surging revenues.
Brands at the highest end of fashion are faring poorly too. With the economy in the doldrums, Chinese consumers are spending less on expensive items. But there's another factor concerning the CEOs of high-end goods firms: "luxury shame".
Beijing has launched a clampdown on flaunting wealth, including banning the flashiest fashion influencers from social media. Showing off is now a nonstarter. And given the Guochao trend, consumers in China are increasingly gravitating towards homegrown luxury brands. LVMH, which includes Louis Vuitton, Dior, and numerous other ultra-premium brands, is feeling the pain. Its sales in Asia, excluding Japan, which account for almost a third of its international revenue, fell 14% in the first quarter of this year.
In another blow to Louis Vuitton, cash-strapped Gen-Z employees are turning to so-called "pingti" products, high-quality replicas or "dupes" of luxury brand goods with a much lower price tag.
Like Louis Vuitton, Gucci trades off its status-symbol monogrammed styles that are instantly recognisable as signifiers of wealth. Now that conspicuous displays of consumption are frowned upon in China, and as the pingti trend gathers momentum, Gucci is understandably a no-no for many consumers.
During the first half of this year, revenues at Gucci parent Kering, whose other names range from Yves Saint Laurent to Balenciaga, plunged by 11%, with “a marked deceleration” in China. The group's share price has fallen to a seven-year low as it reels from the downturn, with signs of a recovery slim at the present time.
Burberry is in much the same boat. Famed for its iconic check, the luxury British fashion brand is slumping in China, where it has 65 stores. Globally, Burberry's profits dropped by 40% in the past financial year, and hundreds of job losses are likely, according to Forbes.
Perceived as overpriced, Burberry was criticised in China last year when a $460 (£358) hot water bottle went viral on social media site Weibo, inspiring the hashtag #Burberry won’t get a penny from me. On a positive note, wealthy Chinese consumers are reportedly travelling to Japan to take advantage of the weak yen and snap up luxury items there instead. Burberry has reported an uptick in Japan sales, which could at least partly explain why its revenues have been so disappointing in China.
Hugo Boss shares Burberry's pain. In July, the German fashion house cut its sales and earnings forecasts for the year, partly due to slow demand in China, according to Reuters.
Not every luxury brand is struggling in the People's Republic. Hermès, Prada, and Ralph Lauren have seen their revenues pick up recently. Unlike their more flashy competitors, these relatively understated brands are synonymous with so-called quiet luxury, putting them in a better position to deal with the backlash against conspicuous consumption.
Staying with luxury products, high-end Western watch brands like Omega are in dire straits in China, and flashing a pricey new wristwatch is no longer advisable in the People's Republic.
With China dragging it down, Swatch Group, which owns the Omega brand, reported a 14% dip in sales and a 70% drop in profits for the first six months of this year. The company has cut production by 20% as demand has dried up. The silver lining is that sales of Swatch Group's more affordable brands, such as Swatch and Tissot, should hold up better as Chinese consumers opt for more affordable, less ostentatious timepieces.
Tesla sales in China, its second biggest market, have been lacklustre of late. In June, revenue fell 20% year on year and the US EV maker's market share in the People's Republic shrunk to under 7%, down from over 11% a year ago.
China's economic slowdown is playing a major part in Tesla's woes, but increased competition is the real issue. BYD, the American brand's biggest rival, is going from strength to strength, but scores of other marques, from Xiaomi and Nio to Geely and Xpeng are eyeing Tesla's business in the country. A fierce price war has ensued and Tesla has been forced to cut prices, further hurting revenues.
Volkswagen is coming up short in China too. Last year, the German carmaker invested $5 billion (£3.9bn) defending its position in the Chinese market, according to the FT, but its growth rate fell behind the competition. In the first quarter of this year, sales of Volkswagen's all-electric vehicles plunged by over a quarter in the People's Republic. And with China the weakest link, global sales fell 20% in the second quarter of 2024.
Relatively late to the EV race, Volkswagen, which still offers mostly internal combustion vehicles, can't match the competition in China, with local manufacturers beating it on cost, features, and general appeal to the Chinese public.
General Motors is also fighting to retain its market share in China for the same reasons.
Last year, the US reverted to its position as GM's number-one market for the first time since 2009, as the Chinese side of the business went downhill. Sales in the People's Republic dipped by 8.7%, while they increased in America by 14%. According to finance website Sherwood, GM has endured a $210 million (£164m) equity loss from its Chinese joint venture with SAIC, with revenues continuing to drop.
Likewise, Toyota is trying and mostly failing to weather the economic downturn and keep up with the local competition in China, with its market share on the wane. Undercut by domestic marques, production of the Japanese automaker's vehicles tumbled by almost 22% in June, the fifth consecutive month where Toyota's output has declined by 20% or more, Reuters reports.
The Chinese consumer boycott of Japanese products triggered by the Fukushima water release last August is also likely behind Toyota's recent muted performance in the People's Republic.
In March, foreign chipmakers were dealt a blow when the Chinese government blocked overseas-made semiconductors from its PCs and servers. Among the most affected by the ban is Intel. Last year, the company generated $15 billion (£11.5bn) in the People's Republic, 27% of its total global revenue. The US government has since slapped on export controls, with more reportedly in the pipeline, and Intel has had to revise down its revenue forecast for the current quarter by a billion dollars.
Looking ahead, Intel is doubling down on expanding its US operations, which seems wise given the hurdles it faces in China.
China is also a major market for fellow US chipmaker AMD. Last year, the People's Republic accounted for 15% of its global sales total of $22.7 billion (£17.7bn).
Like Intel, AMD is caught in the crosshairs of the US-China trade war. Restrictions are piling up on both sides as America seeks to prevent China from accessing advanced semiconductor technology, and China responds by shutting out US chipmakers. Both firms have seen their share prices fall due to tight regulations and will have an even rougher ride if they're further impeded from doing business in China.
Apple's troubles in China appear to be never-ending. The nation's economic woes have translated to fewer sales of the US tech giant's premium products, while local upstarts are biting chunks out of its market share. In September, Apple saw the launch of its new iPhone 16 overshadowed within hours after Huawei unveiled its new tri-fold smartphone.
In fact, Chinese brands have pushed the once mighty iPhone out of the top five bestselling smartphones in the country. Apple has introduced discounts to pep up sales but has plenty of other issues to tackle, including how to get around a Chinese ban on its AI features, which could lead to even fewer sales. China is Apple's third biggest market, accounting for 19% of its global revenue, so the sales dip is bad news for the company. Apple is also being impacted by the US-China trade war and is in the process of moving much of its production out of the People's Republic, presumably at a heavy cost.
Now explore the US-China tech war and discover who's winning