Luxury goods are being discounted by up to 50 percent in China as middle-class shoppers curb spending on big-ticket items and retailers struggle with excess inventory.
Domestic discounts are mainly offered by aspirational brands such as Versace and Burberry, as China’s once-greedy middle-class consumers have become more frugal, industry insiders and experts say.
The brands had started selling their products on local e-commerce platforms in an attempt to capitalize on a surge in luxury buying during the coronavirus pandemic, but e-commerce companies are now slashing prices to boost foot traffic amid the economic downturn.
Earlier this month, Marc Jacobs was discounting handbags, clothing, and shoes by more than 50% on Alibaba’s luxury e-commerce platform, Tmall Luxury Pavilion, while Bottega Veneta was offering 24-month interest-free loans for bag purchases on the same site.
Whereas once “everyone was a winner” in China’s luxury market, says Jonathan Siboni, founder of Paris-based data intelligence platform Luxuryensight, “now it’s polarized into winners and losers.”
“It’s a challenge for brands that are too cheap or too small to stay in the middle and survive,” he said.
According to the luxury website, average markdowns for Versace and Burberry products in China across all distribution channels will reach 50% and possibly even more in 2024, up from 30% and 40% in 2023.
Burberry warned on Monday in its first-quarter earnings report that same-store sales in mainland China fell 21 percent and full-year profits would fall short of expectations. The company said spending by Chinese customers overseas “decreased, but held up better than in mainland China.”
Experts say top brands such as Louis Vuitton, Hermes and Chanel have been stronger across regions, targeting higher-spending demographics, maintaining tighter control over distribution and eschewing discounting.
China’s domestic luxury goods market doubled in size between 2019 and 2021, according to consulting firm Bain, as travel restrictions during the pandemic forced shoppers to buy goods at home.
Companies have been stockpiling goods to meet growing demand and rushing to expand their market influence by joining local third-party e-commerce groups such as Tmall and JD.com.
A total of 200 luxury brands had joined Tmall by October 2020. Luxury brands also raised prices in China to recover some of their losses in Europe and the US after countries imposed strict lockdowns.
“Chinese consumers can’t go anywhere else, so they’re going to shop locally no matter how expensive it is,” said Veronica Wang, a partner at Hong Kong consulting firm OC&C.
China’s luxury boom took a hit in 2022 when the government imposed lockdowns in cities including Shanghai, Beijing and Guangzhou. After restrictions were eased at the end of the year, the market’s recovery was held back by slowing economic growth, a real estate crisis, rising youth unemployment and declining consumer confidence.
China’s economic momentum slowed in the second quarter, weaker than expected, with gross domestic product growing 4.7 percent in the second quarter from a year earlier, official data released on Monday showed.
Luxury brands and retailers are overstocked and have begun discounting as international travel resumes, with a weak yen adding further pressure, making luxury goods in Japan cheaper than in mainland China.
E-commerce platforms have been particularly aggressive on pricing. “The platforms don’t own the brands, so they focus purely on commercial performance. When the market is bad, it’s easy for the platforms to just discount,” Wang says. “It’s a battle between building long-term brand equity and achieving short-term commercial performance.”
Chinese e-commerce groups have traditionally held a series of sales throughout the year, but as the economy slows, sales are becoming more frequent and competition for shoppers is intensifying. Yoox Net-a-Porter, an e-commerce platform that specializes in selling discount luxury goods, withdrew from China in June.
“When you sell to wholesalers, there’s a risk of uncontrollable discounting” in China, said Elena Sokolova, an analyst at Morningstar in London.
“In my view, online discounts can be particularly harmful as they are not tied to a specific store or outlet location and are visible and accessible to a wider audience,” she added.
Some luxury brands are also struggling with rising return rates as shoppers take advantage of online promotions that require them to spend a certain amount to receive a discount.
According to the luxury website, Marc Jacobs’ return and cancellation rates in China will rise from 30% in 2023 to 40% in 2024, while Brunello Cucinelli’s will increase from 59% to 69% in the same period.
“The data reported are not representative of our business or overall trends and have no statistical significance,” Brunello Cucinelli said in a statement.
Versace, Marc Jacobs, Burberry, Jil Sander and Bottega Veneta did not respond to requests for comment.
The discounts have spooked some luxury shoppers, and not necessarily in a good way: Pookie Li, fashion curator and co-director of Shanghai-based creative agency Poptag, said discounts of 40 to 60 percent at brands such as Bottega Veneta and Jil Sander have changed perceptions of what brands are worth.
“Many people buy expensive fashion and luxury brands with the expectation that they will more or less retain their value,” Lee said.
It’s unclear whether discounts will help brands clear inventory, as confidence among Chinese shoppers remains low: The percentage of Chinese respondents who said they splurged on at least one product in the past month fell to 42% as of June 2024, down from 59% in 2022, according to a Deloitte survey.
Federica Lovato, a partner at Bain Milano, said the trend was one of widespread “luxury shaming” similar to what US and European shoppers experienced after the 2008 financial crisis.
“Customers don’t want to be seen carrying flashy luxury items or shopping bags. It’s becoming the norm in China, and foot traffic and foot traffic to stores is very low.”
For Lee, discounts will influence future purchasing decisions as he wants products that will retain their value.
“Discounted brands can make people question not only the actual value of the product but the brand in general,” he said.
