Luxury Goods with Malicious Overstock Due to Reduced Consumption in China... Tearful 'Half-Price' Discounts

Balenciaga·Versace 40%, 50% Bomb Sale
Middle-Class Luxury Consumption Plummets Amid Delayed Economic Recovery in China

As luxury consumption in China, which has established itself as a major player in the global luxury market, contracts, luxury brands are engaging in unprecedented levels of discount competition, Bloomberg reported on the 14th (local time).

According to the report, starting this month, Chinese consumers can purchase Balenciaga's popular handbag products at prices 35% lower than those on the brand's official website and major luxury sales platforms. A source revealed that Balenciaga more than doubled the number of discounted products from January to April this year and accounted for over 10% of inventory on the Chinese e-commerce platform Tmall.

[Image source=AFP Yonhap News]

Versace, Givenchy, and Burberry also cut prices by more than half on local e-commerce platforms including Tmall. In particular, Versace's average discount rate, which was about 40% in 2023, surged to over 50% this year. The source added that the number of products sold by several luxury brands, including Versace, skyrocketed from just a few last year to hundreds within the first four months of this year.

Bloomberg emphasized, "For luxury brands that pursue a unique image and value, such price competition was unimaginable just a few years ago," adding, "It is rare for luxury brands, which prefer to discreetly clear inventory through outlet malls or private sales, to place such significant discounts prominently on main platforms." Jacques Roizend, Managing Director of China Consulting at Digital Luxury Group, also commented, "It is surprisingly reckless for luxury brands to hold sales on Tmall, the most publicly accessible platform in China."

The background to this discount competition among luxury brands is interpreted as China's real estate slump and delayed economic recovery. Bloomberg noted, "Luxury brands expect to increase profits and improve performance in China, but the economic downturn is eroding Chinese household wealth, causing the middle class to become increasingly frugal." In fact, Kering, the French luxury goods company that owns Balenciaga, warned in April that first-half profits could drop by up to 45% due to sluggish Gucci sales in China. Burberry Group's stock price on the London Stock Exchange has halved over the past year due to weak demand in China and the United States.

However, not all luxury brands are adopting discount strategies. Hermes, Chanel, Louis Vuitton, and Prada are reportedly focusing on nurturing VIP customers with high net worth by limiting their products' exposure on e-commerce platforms instead of engaging in price competition. Angelito Perez Tan Jr., co-founder of RTG Group Asia, pointed out, "While discounts can help clear inventory in the short term, frequent price reductions that make the brand too accessible may drive away the VIP customers they covet."