Luxury gets a makeover: china’s market rebounds as gen z and AI fuel secondhand surge

China's personal luxury market experienced a moderated contraction of 3%–5% in 2025, improving from the sharper declines of 2024, with early recovery signs emerging in the latter half of the year. This stabilization coincided with a significant repatriation of luxury spending, as 65% of Chinese consumers' luxury purchases occurred domestically, driven by factors such as currency fluctuations, narrowing price gaps, and boosted domestic tourism and mall promotions.

Consumer preferences in China shifted markedly in 2025 towards more selective, value-driven luxury purchases that emphasize a balance of quality, exclusivity, and practicality. This evolution was accompanied by a growing appetite for experience-based consumption—such as travel and wellness—highlighting a desire for emotional and sensory engagement over mere material accumulation.

Parallel to these trends, China's secondhand luxury market surged by 15%–20% in 2025, fueled by increased supply and rising acceptance among younger consumers. The sector’s growth was further accelerated by innovative livestreaming platforms that enhanced product verification and consumer interaction, although the secondhand segment still represented less than 10% of the primary luxury market, indicating substantial room for expansion.

By early 2026, luxury brands have strategically deepened their cultural engagement in China, moving beyond superficial motifs to craft narratives that blend heritage with contemporary vision, as seen in Harry Winston's $81,500 rose gold watch and Chloé's horse-themed capsule collections for Lunar New Year. This culturally resonant approach is crucial amid a volatile Chinese luxury market that contracted 3% to 5% in 2025 but showed signs of recovery, with analysts like Luca Solca forecasting mid-single-digit growth in 2026, underscoring the importance of authentic local connections to regain market share.

Amid economic downturns, luxury leaders like Derek Sulger advocate for rationalizing product offerings and selling less rather than cutting prices, emphasizing that maintaining quality and authenticity preserves long-term consumer trust. Sulger warns that price cuts inevitably lead to quality compromises—akin to a restaurant downgrading ingredients—which would erode brand value, advising brands to accept temporary reductions in consumer spending while positioning themselves for future demand.

The bankruptcy of Sax Global in 2026 highlights the fragility of the traditional US department store model, prompting luxury brands, especially smaller ones, to rethink consumer engagement strategies by balancing physical retail with digital channels and influencer partnerships. Physical stores are increasingly repositioned as experiential platforms for discovery, loyalty, and personalization, while brands invest in owned and operated stores and digital touchpoints to connect with digitally native generations like Gen Alpha, who have unprecedented exposure to luxury via digital media.

Luxury is evolving beyond product-centric definitions to encompass consumer mindset and experiences, expanding the category to include sectors like travel, hospitality, and automotive. This broader conceptualization reflects a shift in how brands engage consumers, focusing on holistic luxury experiences that resonate with evolving expectations and lifestyles.

By early 2026, AI-powered resale platforms like ThredUp have transformed the luxury resale market into a highly profitable sector, boasting gross margins of 79.5% in Q2 2025—far surpassing traditional apparel retailers' typical 30%. This leap is largely attributed to over $400 million invested in supply chain automation technologies such as item identification, measurement capture, and product photography, alongside reinforcement learning models that dynamically adjust pricing to optimize sales velocity and revenue across millions of listings.

Innovations in generative AI and visual search tools have revolutionized consumer discovery in the fragmented secondhand marketplace. ThredUp’s AI model enables shoppers to find items by style descriptors—even unconventional ones like 'ugly Christmas sweater'—while tools like Beni Lens curate comparable products across multiple platforms, simplifying the search experience and driving higher engagement.

Consumer adoption of AI in resale shopping is robust and growing, with nearly half of shoppers using AI tools during their secondhand journeys and 63% comfortable with AI agents making purchases on their behalf. This acceptance signals a future where AI-enabled automated transactions will further accelerate market growth, especially as younger generations increasingly embrace resale platforms.

The RealReal exemplifies AI-driven growth in luxury resale, reporting a 24% year-over-year GMV surge to $606 million in Q1 2026, fueled by Gen Z and millennial buyers. Its proprietary Athena AI system, which now processes 35% of items and aims for 50% by year-end, enhances authentication, pricing, and customer experience, contributing to a 19% revenue increase to $190 million and a near tripling of adjusted EBITDA to $13.1 million. This momentum has prompted The RealReal to raise full-year 2026 guidance to $2.47 billion GMV and $67 million adjusted EBITDA, underscoring AI’s pivotal role in scaling luxury resale.

ThredUp’s Q1 2026 results further illustrate AI’s impact, with 14.6% year-over-year revenue growth to $81.67 million and a 25% increase in active buyers driven by strategic marketing and supply initiatives. The company continues to leverage AI-driven personalization and reinforcement learning to enhance customer engagement and optimize pricing, while expanding seller channels like TikTok Shop to maintain supply-demand balance amid a more selective consumer environment.

By early 2026, Millennials and Gen Z have emerged as the primary catalysts behind the explosive growth in luxury resale, with spending on secondhand luxury fashion surging fivefold year over year. Platforms like The RealReal and ThredUP have capitalized on this trend, reporting significant revenue boosts and a 24% increase in gross merchandise value to $606 million in Q1 2026, driven largely by these younger consumers who are both buying and selling pre-owned luxury as a savvy response to inflation and rising apparel prices.

This demographic shift is not only reshaping consumer behavior but also compelling luxury brands to rethink their strategies by expanding resale offerings and integrating resale-as-a-service models. With active buyers on resale platforms growing 10% to over one million and average order values climbing 15%, brands are increasingly leveraging resale to foster long-term loyalty among Millennials and Gen Z, who represent over 40% of the U.S. population yet have comparatively lower disposable incomes than older generations.

ThredUp’s Luxe platform exemplifies how companies are successfully tapping into this demand by offering authenticated premium pre-owned designer wear, a strategy that has seen overwhelming market response since its 2017 launch. CEO James Reinhart highlighted that 'Luxe items are flying off the shelves,' and recent expansions onto TikTok have further amplified engagement with higher-quality resale items, underscoring the growing appetite for circular luxury consumption among younger shoppers.

The broader luxury industry is rapidly embracing circular economy principles, with over half of luxury retailers now offering pre-owned or trade-in programs and nearly 45% partnering with resale platforms to build circular ecosystems. Deloitte’s Global Powers of Luxury 2026 report forecasts the secondhand luxury market to reach $367 billion by 2029, growing nearly three times faster than the primary apparel market, a testament to how demographic-driven resale adoption is fundamentally transforming luxury retail’s future.

By early 2026, ThredUp had firmly positioned itself as a catalyst for circularity in luxury retail through its innovative Resale-as-a-Service (RaaS) model, which since its launch in May 2025 eliminated upfront fees and spurred a 37% surge in branded resale adoption across over 60 brands including J.Crew, Tommy Hilfiger, and Madewell. This 'zero-barrier' approach not only democratizes access to resale channels but also strives to standardize infrastructure, making branded resale a profitable and mainstream retail avenue. To accelerate this mission, ThredUp established a five-member advisory board featuring industry leaders like Samina Virk and David Sobie, whose combined expertise in climate, technology, logistics, and retail is instrumental in crafting best-in-class resale solutions that are grounded in real-world retail experience, as emphasized by Chief Strategy Officer Alon Rotem.

The bankruptcy of Sax Global, once the largest multibrand luxury retailer in a top global market, marks a pivotal shift in luxury retail, particularly highlighting the waning influence of traditional department stores as discovery and engagement hubs. This decline challenges luxury brands—especially smaller ones that relied heavily on curated department store placements—to rapidly develop new digital discovery and commerce capabilities. As noted in early 2026 analysis, brands must now cultivate 'new muscles' in influencer partnerships and genetic commerce platforms to maintain consumer connections in an evolving landscape.

Younger generations, notably Gen Alpha, are reshaping luxury consumption through unprecedented digital exposure, prompting brands to pivot toward owned retail spaces and digital channels to forge meaningful connections. This generational shift underscores a broader redefinition of luxury that transcends traditional hallmarks like heritage and craftsmanship, embracing a consumer-centric mindset that values experiences across travel, hospitality, and automotive sectors. By early 2026, luxury is increasingly defined 'by the consumer and their mindset rather than the product or service bought,' signaling a more aspirational and holistic market trajectory.