"The popularity of conspicuous consumption among young people is a by-product of China's economic and social transformation where the economic takeoff has given the Chinese growing purchasing power they are not yet adept at using," said Sun Yimin with Fudan University.

"These young luxury buyers need tolerance as well as guidance because the emotional satisfaction luxury shopping can generate for Chinese consumers will diminish as the economy keeps growing," he said.

Localization

Now more aware of the importance of the Chinese market, major designer brands are looking to China to cushion the crisis.

In the country's various metropolitan hubs as well as second-tier cities, boutique stores carrying the logos of globally recognized brands are becoming increasingly visible.

"While global luxury brands continue to rely on their flagship stores in metropolitan hubs and advertisements in fashion magazines for brand recognition, many of them have reached out beyond Beijing and Shanghai in second- and third-tier cities," said the former merchandise manager of Omega, who was once with the marketing team of Louis Vuitton in Shanghai.

Although half of China's wealthy consumers are now living in China's 10 largest cities, three-quarters of new wealthy customers in five to seven years will be those outside of the first-tier cities—people who have close connections with their environment. These are mainly local entrepreneurs who are not likely to move to large cities with an income increase, according to the Mckinsey report.

With 2008 sales growth on the mainland at 42 percent, Gucci just opened three new stores in Wuhan, Shanghai and Beijing in the past two months; Italian shoes designer Salvatore Ferregamo said they will open eight new stores this year in China.

Apart from opening more stores, these globally eminent brands are now offering price discounts to offload their stock amid the economic downturn. Louis Vuitton, for instance, marked down prices of some of its products by 2 to 7 percent last month. Big names including Prada, Gucci, Dunhill and Marc Jacobs all started sales promotions in Beijing and Shanghai since late June.

"They have to cut prices in order to boost sales and market share, because demand for luxury goods is more elastic and thus easily affected during a crisis compared with necessities, " said Kong Shuhong, professor of economics with University of International Business and Economics.

In other moves to make their products affordable for more Chinese and to gain a larger market share, high-end brands are launching more logo-adorned accessories, such as neckties and cuff links, or resorting to brand extension strategy to cater to young customers.

"Not many in China's second- and third-tier cities are willing to spend half of their monthly income on a basic Louis Vuitton bag, but through sales of accessories affordable to a much larger customer base, luxury brands build up brand recognition," said Lisa Li.