- Luxury brands are suffering as consumer spending in China declines.
- Brands like Balenciaga, Burberry and Marc Jacobs are offering deep discounts to lure customers back.
- But experts warn that discounting could make these luxury brands less appealing.
Luxury brands including Marc Jacobs, Burberry and Balenciaga are offering deep discounts in China to lure customers back after falling sales.
This week, Hugo Boss, Burberry, Richemont and Swatch Group all reported weak sales in China.
Hugo Boss is Preliminary Second Quarter Financial Results The company said on Monday that the Chinese market was “particularly challenging.” Meanwhile, British fashion house Burberry’s sales in mainland China fell 21 percent year-on-year in the most recent quarter.
The drop in demand has led some brands to offer steep discounts in China to clear excess inventory.
The Financial Times reported in early July that Marc Jacobs was offering discounts of more than 50% on Alibaba’s luxury e-commerce platform, Tmall Luxury Pavilion.
Bloomberg reported that Balenciaga, owned by luxury conglomerate Kering, has discounted sale items by an average of 40% in three of the first four months of 2024. Burberry has also cut prices in China.
Burberry, Balenciaga, and Marc Jacobs did not immediately respond to Business Insider’s requests for comment.
Luca Solca, a luxury goods analyst at Bernstein, told Business Insider that these brands are lowering their prices in response to the softening Chinese market.
Consumer spending slumps in China
China is a key market for luxury brands. Between 2017 and 2021, China’s luxury goods market tripled. Bain & Company Said Reports earlier this year said the market had seen a steep decline in 2022 due to COVID-19 restrictions.
Once restrictions were lifted in 2023, there was a “significant” recovery, the report said.
“We’ve seen incredible revenge spending since the pandemic, which has led to incredible success rates in China,” Daniel Langer, a professor of luxury at Pepperdine University and CEO of luxury strategy firm Equite, told BI.
“This is partly because people are travelling less and have more budgets to spend on products like watches and leather goods,” he added.
But the effect then faded away.
China faces a series of economic challenges, from a real estate crisis to geopolitical headwinds and stock market volatility, which has led to a decline in consumer spending.
This economic uncertainty is likely to cause consumers to hold back on discretionary purchases.
Discounts risk making luxury brands less appealing
Brands increased production during boom times to meet demand, but when demand fell off they were left with unsold product.
“Brands were too shortsighted to understand that this was a temporary phenomenon, and as a result we saw a slowdown in demand, which was entirely expected,” Langer said.
Brands in China may also be hurting as the weak yen has driven down the prices of luxury goods, encouraging local luxury shoppers to travel to Japan to make luxury purchases.
But discounting may not be the best response.
“Price discounting is the quickest and surest way to destroy brand equity,” says Langer, as lowering prices erode the long-term value of a branded product.
But not all brands are responding to the slowdown in consumer spending in China in the same way.
Luxury brands like Hermes, Dior and Louis Vuitton do not discount their prices, but that is by choice.
By not discounting, “these luxury brands will grow less and decline more quickly,” Solca told BI.
But for luxury brands, it’s better than discounting, he said, adding: “These brands are protecting their long-term brand equity.”
