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Harrods Closes Shanghai Outpost as China's Middle Class Rethinks the Value of Prestige

MarketDash Editorial Team
5 days ago
The departure of Harrods from Shanghai and the struggles of private universities tell a similar story about China's shifting economic priorities. Conspicuous consumption is out, pragmatic value is in, and the middle market is getting squeezed.

Sometimes disparate market signals tell the same story if you squint at them right. Two recent developments in China reveal something fundamental about how the country's economic mindset is shifting: prestige for prestige's sake is losing its appeal, and a more hard-nosed pragmatism is taking over.

Tea Time Is Over

First up: Harrods, the venerable British department store, is shuttering its Shanghai operations in January. This includes its tea rooms and a private club called Harrods the Residence. The brand launched in Shanghai back in 2020, not as a conventional retail store but as something more conceptual—selling a "British lifestyle" complete with curated social experiences and a jaw-dropping 150,000 yuan ($21,000) membership fee.

Looking back, the timing was spectacularly unfortunate. The whole concept banked on the kind of conspicuous consumption that defined China's boom years. Charging people $21,000 for the privilege of drinking tea—even fancy tea with Harrods teddy bears—only makes sense when cheap money is flowing freely and showing off is part of the game. But that era is fading fast.

There's also a cultural element here. French and Italian luxury brands have successfully positioned themselves as lifestyle aspirations in China, but a quintessentially British social club? That's a tougher sell, appealing to a narrower slice of consumers.

Demographics played a role too. The club model probably made sense when Shanghai was packed with Western executives rubbing elbows with wealthy Chinese entrepreneurs. But geopolitical tensions and the pandemic drove many expatriates away, and they haven't come back. The customer base simply evaporated.

Not All Luxury Is Doomed

Does this mean Western luxury brands are finished in China? Not exactly. While second-tier luxury names are scaling back, the top-tier players—Hermès, Louis Vuitton, and their ilk—continue to command premium prices. Even Apple, despite periodic doom-and-gloom headlines about Chinese sales, has rebounded. The iPhone 17 recently grabbed 25% market share. Walk through Beijing and you'll still see airline crews and consumers sporting the latest Apple hardware. The market is shrinking, sure, but the appetite for the absolute best hasn't disappeared. The difference is that broad-based luxury spending is over. The wealthy will still buy, but the days of everyone splurging are done.

Degrees Aren't What They Used to Be

While the wealthy reconsider their club memberships, China's middle class is rethinking its path to prosperity. Enter XJ International (1765.HK), a company that operates private universities. The firm is currently offloading underperforming campuses to service its debt load. Unlike China's primary education sector, which got decimated by regulatory crackdowns in 2021, XJ's problems stem from a fundamental shift in market demand.

There was a time when a college degree was viewed as the golden ticket to success in China. That sentiment is reversing. The economy, combined with the looming threat of artificial intelligence, has fundamentally changed the value proposition of higher education. Today, a generic college degree is increasingly a direct route to unemployment.

Youth unemployment remains stubbornly high. Reports from Beijing and Shanghai are filled with stories of graduates struggling to find decent-paying work. Back in 2007, a university graduate could expect a starting salary around 3,000 yuan. Nearly two decades later, starting salaries haven't risen nearly enough to justify the investment in tuition and lost earning years.

The Vocational Pivot

As a result, there's a pivot happening toward vocational education—a sector that President Xi has explicitly encouraged. There's a growing recognition that skilled trade jobs like electricians or plumbers offer better protection against the AI revolution than lower-level white-collar corporate positions. You can't automate someone fixing your plumbing, at least not yet.

For investors eyeing the education sector, the message is clear: align with government priorities or face existential risk. The "in-between" private universities—those lacking the state backing of elite institutions like Peking University or Tsinghua University—are in a precarious spot. Without the "Iron Rice Bowl" funding that protects top-tier giants, these private schools are vulnerable to demographic shifts and regulatory whims. The smart money is steering clear of this squeezed middle and instead following the state's roadmap: vocational training, high-tech education, AI, and green energy programs.

The Common Thread

Ultimately, both Harrods and XJ International are casualties of a maturing, tightening economic environment. Whether it's a 150,000 yuan social club or a four-year university degree, Chinese consumers are no longer buying the brand. They're scrutinizing the value. In an economy where money isn't flowing as freely and uncertainty is rising, prestige without tangible returns simply doesn't cut it anymore. The middle is getting squeezed—in luxury, in education, and probably in a lot of other sectors we'll be reading about soon.

Back to News

Harrods Closes Shanghai Outpost as China's Middle Class Rethinks the Value of Prestige

MarketDash Editorial Team
5 days ago
The departure of Harrods from Shanghai and the struggles of private universities tell a similar story about China's shifting economic priorities. Conspicuous consumption is out, pragmatic value is in, and the middle market is getting squeezed.

Sometimes disparate market signals tell the same story if you squint at them right. Two recent developments in China reveal something fundamental about how the country's economic mindset is shifting: prestige for prestige's sake is losing its appeal, and a more hard-nosed pragmatism is taking over.

Tea Time Is Over

First up: Harrods, the venerable British department store, is shuttering its Shanghai operations in January. This includes its tea rooms and a private club called Harrods the Residence. The brand launched in Shanghai back in 2020, not as a conventional retail store but as something more conceptual—selling a "British lifestyle" complete with curated social experiences and a jaw-dropping 150,000 yuan ($21,000) membership fee.

Looking back, the timing was spectacularly unfortunate. The whole concept banked on the kind of conspicuous consumption that defined China's boom years. Charging people $21,000 for the privilege of drinking tea—even fancy tea with Harrods teddy bears—only makes sense when cheap money is flowing freely and showing off is part of the game. But that era is fading fast.

There's also a cultural element here. French and Italian luxury brands have successfully positioned themselves as lifestyle aspirations in China, but a quintessentially British social club? That's a tougher sell, appealing to a narrower slice of consumers.

Demographics played a role too. The club model probably made sense when Shanghai was packed with Western executives rubbing elbows with wealthy Chinese entrepreneurs. But geopolitical tensions and the pandemic drove many expatriates away, and they haven't come back. The customer base simply evaporated.

Not All Luxury Is Doomed

Does this mean Western luxury brands are finished in China? Not exactly. While second-tier luxury names are scaling back, the top-tier players—Hermès, Louis Vuitton, and their ilk—continue to command premium prices. Even Apple, despite periodic doom-and-gloom headlines about Chinese sales, has rebounded. The iPhone 17 recently grabbed 25% market share. Walk through Beijing and you'll still see airline crews and consumers sporting the latest Apple hardware. The market is shrinking, sure, but the appetite for the absolute best hasn't disappeared. The difference is that broad-based luxury spending is over. The wealthy will still buy, but the days of everyone splurging are done.

Degrees Aren't What They Used to Be

While the wealthy reconsider their club memberships, China's middle class is rethinking its path to prosperity. Enter XJ International (1765.HK), a company that operates private universities. The firm is currently offloading underperforming campuses to service its debt load. Unlike China's primary education sector, which got decimated by regulatory crackdowns in 2021, XJ's problems stem from a fundamental shift in market demand.

There was a time when a college degree was viewed as the golden ticket to success in China. That sentiment is reversing. The economy, combined with the looming threat of artificial intelligence, has fundamentally changed the value proposition of higher education. Today, a generic college degree is increasingly a direct route to unemployment.

Youth unemployment remains stubbornly high. Reports from Beijing and Shanghai are filled with stories of graduates struggling to find decent-paying work. Back in 2007, a university graduate could expect a starting salary around 3,000 yuan. Nearly two decades later, starting salaries haven't risen nearly enough to justify the investment in tuition and lost earning years.

The Vocational Pivot

As a result, there's a pivot happening toward vocational education—a sector that President Xi has explicitly encouraged. There's a growing recognition that skilled trade jobs like electricians or plumbers offer better protection against the AI revolution than lower-level white-collar corporate positions. You can't automate someone fixing your plumbing, at least not yet.

For investors eyeing the education sector, the message is clear: align with government priorities or face existential risk. The "in-between" private universities—those lacking the state backing of elite institutions like Peking University or Tsinghua University—are in a precarious spot. Without the "Iron Rice Bowl" funding that protects top-tier giants, these private schools are vulnerable to demographic shifts and regulatory whims. The smart money is steering clear of this squeezed middle and instead following the state's roadmap: vocational training, high-tech education, AI, and green energy programs.

The Common Thread

Ultimately, both Harrods and XJ International are casualties of a maturing, tightening economic environment. Whether it's a 150,000 yuan social club or a four-year university degree, Chinese consumers are no longer buying the brand. They're scrutinizing the value. In an economy where money isn't flowing as freely and uncertainty is rising, prestige without tangible returns simply doesn't cut it anymore. The middle is getting squeezed—in luxury, in education, and probably in a lot of other sectors we'll be reading about soon.