Luxury brands are launching aggressive sales campaigns, including 50% off promotions, as China’s economy struggles to recover and middle-class consumers reduce spending. This trend is attributed to the sluggish economy and Chinese President Xi Jinping’s “Common Property Policy,” emphasizing equal wealth distribution.
The Financial Times (FT) reported on Tuesday, citing data from a luxury site aggregator, that the average discount rates for Versace and Burberry in China increased from 30% and 40% last year to over 50% this year.
On Alibaba and its subsidiary Tmall, Marc Jacobs offered more than 50% off on handbags, clothing, and shoes earlier this month, while Bottega Veneta provided 24-month interest-free installments on bag purchases.
According to consulting firm Bain & Company, luxury goods sales in China’s domestic market saw a significant surge when travel restrictions due to COVID-19 prevented Chinese consumers from shopping overseas. In 2021, sales reached approximately double the amount recorded in 2019.
High-end brands have expanded their inventory to meet the rising demand and started selling on e-commerce platforms such as Tmall and Jingdong.com to boost sales. They have even raised prices in China to compensate for losses in Europe and the United States.
However, consumer confidence remains subdued due to factors such as a slowdown in the real estate market, rising unemployment, and the resurgence of COVID-19 in China since 2022, despite the “With Covid policy.” Major cities like Beijing and Shanghai have faced extended lockdowns.
While high-end brands struggle with excess inventory, Chinese people have also turned to buying products in Japan, taking advantage of the weak yen after resuming overseas travel.
Furthermore, e-commerce companies have offered price discounts to stimulate traffic amid the economic slowdown, leading to an increase in return rate from online sales, which has become a headache. The return and cancellation rate for Marc Jacobs in China has risen from 30% last year to 40% this year.
Jelena Sokolova, an analyst at Morningstar, warned of the “risk of uncontrolled discounting when you sell to a wholesaler in China,” noting that online discounts exposed to the public particularly damage a brand’s image.
A fashion curator pointed out that the perception of brand value is shifting as some brands offer discounts ranging from 40% to 60%. Consumers of high-end brands expect a certain level of pricing integrity.
Jonathan Siboni, founder of data intelligence platform Luxurynsight in Paris, saw that, unlike in the past, polarization between winners and losers is now taking place in the Chinese high-end brand market. “The challenge is for the brands stuck in the middle, and they are not cheap enough or not big enough to survive,” he said.
Bain & Company saw the formation of an atmosphere of shaming luxury among the Chinese affluent class in the economic slowdown, similar to the US and Europe during the 2008 financial crisis, as a disaster for high-end brands.
Kenneth Chow of Oliver Wyman commented on the Chinese government’s focus on wealth distribution, stating that its pursuit of common prosperity actually impedes the distribution of wealth.
