'The rule that buying luxury goods today is the cheapest' has become an old saying in China, the world's largest luxury goods market.
Luxury goods that once could not be sold due to scarcity have now been forced into 'teardrop discounts' on the secondhand market, selling for 90% less than the cost price.
On the 11th (local time), Reuters reported on the landscape of a large secondhand luxury goods store in Beijing, China, stating, 'The shadow of economic recession that has enveloped the Chinese economy has penetrated deep into the heart of the luxury goods empire.'
The display case at this store showcased a Coach handbag from the American masstige brand with a price tag of 219 yuan (about 42,000 won), waiting for a new owner. This item originally priced at 3,260 yuan (about 610,000 won).
A G Cube necklace from the French luxury brand Givenchy, priced at 2,200 yuan (about 410,000 won), was available for just 187 yuan (about 35,000 won). This represents a discount rate of 93%.
The existing standard discount rate in the luxury goods industry was between 30 to 40%. A discount rate exceeding 90% is practically an extraordinary level, akin to 'fire sales.'
The problem is that even with such 'teardrop discounts,' sales are not happening well.
Zhang Lisha, a researcher at the market research firm Dashie Consulting, noted, 'The number of sellers of secondhand luxury goods is increasing sharply by 20% each year, while the number of consumers remains stagnant,' adding, 'As low-priced listings flood the market, price competition is becoming more intense.'
As signs of economic recession have become more pronounced, Chinese consumers have completely closed their wallets.
On the previous day, China's National Bureau of Statistics announced that the consumer price index (CPI) for May fell by 0.1% compared to the same period last year. The CPI in China has recorded negative figures for four consecutive months this year.
The so-called revenge spending that was expected to burst out once the pandemic restrictions were lifted has vanished. Instead, an endless recession in the real estate market and the worst youth unemployment rate on record have taken its place.
Chinese households have 70% of their assets tied up in real estate. Years of declining real estate prices have disintegrated the assets of China’s middle class. Bloomberg Economics estimates that for every 5% drop in Chinese home prices, household assets evaporate by up to $2.7 trillion (about 3,700 trillion won). The youth unemployment rate exceeds 15%.
Consumers with lighter pockets have lined up to sell secondhand luxury goods they bought during the boom period. According to Dashie Consulting, the number of people wanting to sell secondhand luxury goods this year has increased by 20% compared to last year. New secondhand luxury goods trading platforms, such as Enwei, Feiyu, and Fonhu, have also flooded the market. However, there has been little change in the number of buyers.
This is the worst scenario for global luxury groups like Louis Vuitton Moët Hennessy (LVMH) and Kering, the parent company of Gucci, which have been captivated by the Chinese dream for the past decade or so.
According to consulting firm Bain & Company, China once accounted for one-third of the global luxury goods market and led its growth.
However, it has now become a headache, regressing the global luxury goods market rather than fostering growth.
The secondhand market served as a gateway for consumers who do not have the money to buy new products to experience luxury goods for the first time. Luxury brands also viewed these consumers as potential loyal buyers for the future.
However, in a market where the market share exceeds 30%, the deluge of low-priced listings is collapsing the pricing policies and images that brands have built over decades in an instant.
Fashion magazine Vogue commented, 'If the secondhand luxury goods market grows to uncontrollable levels, it will erode demand for new products,' and added, 'If luxury goods, which thrive on rarity and sophistication, fall to the status of 'items that anyone can have for a cheap price,' the brand value could fundamentally be damaged.'