Luxury labels slash prices by up to 50% to lure wary Chinese shoppers


The price war would have been unthinkable just a few years ago for labels whose growth stems from an image of exclusivity and products that keep their value. - AFP

BEIJING: Some luxury labels are discounting their products to an unprecedented degree in China, reflecting a growing panic over unsold inventory as local consumers pull back on spending.

Starting this month, Chinese shoppers can snap up a small beige, crocodile-patterned version of Balenciaga’s iconic Hourglass handbag for US$1,947, or 35% off on the mainland’s dominant e-commerce platform, Alibaba Group Holding Ltd’s Tmall. That price is cheaper than what’s listed on the brand’s official websites globally and major luxury platforms including Farfetch.

Balenciaga - part of French luxury giant Kering SA - averaged a 40% discount on sale items in three of the first four months of 2024, according to people familiar with the matter, who asked not to be identified discussing private data.

The brand has also more than doubled its number of discounted products on Tmall, accounting for more than 10% of its inventory on the platform from January to April, the people said.

During the same period last year, Balenciaga only discounted items in January, and at an average of roughly 30%, according to the people. It had no markdowns at all in the first four months of 2022, they said.

A similar trend can be seen for other labels. Capri Holdings Ltd.’s Versace, LVMH’s Givenchy and Burberry Group PLC have all slashed prices, some by more than half, on Tmall and other domestic platforms this month. Versace’s average discount jumped from roughly 40% at the start of 2023 to over 50% this year, according to the people familiar.

Versace and several other premium brands have also offered discounts for longer periods of time so far this year than they did in 2023, the people said. The number of products on sale shot up to the hundreds in the first four months from only a few last year, they added.

The price war would have been unthinkable just a few years ago for labels whose growth stems from an image of exclusivity and products that keep their value. It’s rare to see luxury brands, which usually try and clear stock out of sight in outlet malls or through private sales, put such deep discounts front and center on a flagship platform.

"What I find surprising and frankly ill-advised is that these discounts are being offered on the most visible consumer touch point in the world, which is Tmall,” said Jacques Roizen, managing director of China consulting at Digital Luxury Group. It’s "the equivalent of hosting a public sale on Fifth Avenue or the Champs-Élysées.”

Kering declined to comment, while Capri and LVMH didn’t respond to requests for comment. Burberry didn’t comment on the discounts.

The strategy underscores the predicament global fashion houses face in the mainland as an economic slowdown erodes household wealth. While upscale labels are counting on China to boost revenue and improve performance, the country’s middle class - a pillar of the global luxury market - is growing increasingly frugal, holding out for sales or backing away altogether from major purchases.

Compounding some luxury brands’ pain are high return rates on Tmall, fueled by the platform’s promotional campaigns allowing people who meet certain spending thresholds to obtain discounts - even if they later return some of their purchases. That’s led some shoppers to game the system, ordering expensive items just to secure rebates.

Meanwhile, labels at the highest end of the luxury market, including Hermes International SCA, Chanel and LVMH’s Louis Vuitton, appeared to have fared better. They’ve foregone discounts, limited e-commerce exposure and focused on cultivating high net worth clients, making them more immune to economic downturns.

Some brands, including Kering’s Gucci, Prada SpA and sister brand Miu Miu, also refrain from offering public discounts on China’s e-commerce platforms, said the people familiar.

While discounts might help clear inventory in the short term, frequent price cuts could make brands appear too accessible and drive away coveted VIP clients, said Angelito Perez Tan, Jr., co-founder and CEO of RTG Group Asia, whose businesses include a luxury consultancy. Some high-end labels discount merchandise around events like Black Friday, but markdowns are usually lower than the current China sales, he said.

Online orders made up nearly half of China’s luxury revenue last year, according to consultancy Yaok Group, with Tmall capturing the majority of that spending.

Faltering demand from the Chinese market has already hurt luxury earnings. Kering warned in April of a potential first-half profit drop of as much as 45%, hurt by weak Gucci sales in China. Burberry’s stock has more than halved in the past year off weak demand in China and the US. Chanel cautioned that conditions, even at the higher end, are growing more challenging.

Japan’s weak yen is also contributing to slowing sales in China, as people flock there seeking out the lowest prices they can find.

"It seems natural that, given this context, brands that are selling less than they had anticipated try to monetize their inventory and offer promotions,” said Sanford C. Bernstein retail analyst Luca Solca. - Bloomberg

Follow us on our official WhatsApp channel for breaking news alerts and key updates!

China , luxury , brands , price , slash

   

Next In Aseanplus News

Exclusive-North Korean hackers sent stolen crypto to wallet used by Asian payment firm
Amendment to anti-party hopping law requires thorough bipartisan discussion, agreement, says Azalina
Foreign investors cumulative inflow surges to US$598mil in 1Q24
Missing handicapped man found dead near Kinabatangan power substation
Indonesian and Malaysian Armed forces conduct joint border patrol in Kalimantan
Taiwanese singer David Tao celebrates 55th birthday onstage with wife and son
Suspended policewoman among three to have statements recorded after late activist's mother lodged reports
Tricky draw for Aaron-Wooi Yik at the Paris Olympic Games
20,000 CCTV cameras needed to monitor crime and traffic in KL, says Zahid
Jokowi inks 190-year Nusantara land rights rule for investors

Others Also Read