"Half-Price Discounts"... Luxury Brands in Crisis as Chinese Consumers Close Their Wallets

Increase in Discounts on High-End Brands in Chinese E-Commerce

In China, as middle-class consumers reduce their luxury spending, the number of luxury brands promoting "half-price discounts" is increasing.

On the 16th, the Financial Times (FT) reported, citing the information provider Luxury Site, that the average discount rates for Versace and Burberry in China were around 30% and 40% respectively last year, but this year they have exceeded 50%.

According to the report, on Alibaba and its subsidiary Tmall, Marc Jacobs offered discounts of over 50% on handbags, clothing, and shoes earlier this month. Bottega Veneta also provided 24-month interest-free installment plans for bag purchases.

Previously, during the spread of COVID-19 in China, sales of high-end goods surged. This was due to an increase in demand for luxury items as overseas travel was restricted. According to consulting firm Bain & Company, sales of high-end goods in 2021 nearly doubled compared to 2019.

The photo is not related to any specific expression in the article.

In response, luxury brands increased their inventory and began selling on e-commerce platforms such as Tmall and JD.com to boost sales. They also raised prices within China to offset losses in Europe and the United States.

However, since 2022, the resurgence of COVID-19 in China led to prolonged lockdowns in major cities like Beijing and Shanghai. Despite the "With COVID" policy, consumption slowed due to factors such as a downturn in the real estate market and rising unemployment. Luxury brands faced difficulties from excess inventory, but Chinese consumers took advantage of the weak yen to purchase products in Japan after overseas travel resumed.

In this situation, e-commerce companies began offering price discounts to increase traffic amid the economic slowdown, but they encountered the problem of rising return rates from online sales. According to Luxury Site, the return and cancellation rate for Marc Jacobs in China rose from 30% last year to 40% this year.

Experts analyzed that luxury discounts online could lead to brand image deterioration. Morningstar analyst Yelena Sokolova stated, "When products are sold to wholesalers in China, there is a risk of uncontrollable price discounts," and evaluated that online discounts exposed to the public especially have a negative impact on brands.

Bain & Company also viewed that the emergence of an atmosphere among China's wealthy class that feels ashamed of extravagance amid the economic slowdown has affected the decline in luxury demand. Kenneth Chow of marketing consulting firm Oliver Wyman said, "The Chinese government is promoting common prosperity emphasizing redistribution, which is curbing materialism."