TLDR:
- China’s second-hand and grey markets for luxury goods are booming due to price hikes and weak economy
- Sales across 48 brands on DeWu rose 19% year-on-year in Q2 2023 to over 7 billion yuan
- DeWu, a popular app, now accounts for over 70% of China’s luxury grey market
- Luxury brands are facing challenges from the growth of these alternative markets
- Price differences between official stores and grey market can be significant, sometimes over 50%
China’s luxury goods market is experiencing a significant shift as consumers increasingly turn to second-hand and grey market platforms to purchase high-end items at discounted prices.
This trend, driven by a combination of economic factors and changing consumer behavior, is posing challenges for established luxury brands while creating opportunities for alternative marketplaces.
At the forefront of this movement is DeWu, a popular app originally created for sneaker resales that has now become a dominant force in China’s luxury grey market. According to estimates, sales of top brands on DeWu now make up more than 70% of the country’s thriving grey market.
The platform’s success is evident in its recent performance, with sales across 48 brands rising 19% year-on-year in the second quarter of 2023, reaching over 7 billion yuan ($984.4 million).
The appeal of these alternative markets lies in their significant price advantages. For example, a Burberry scarf priced at 4,800 yuan in an official Shanghai store can be found on DeWu for just 2,939 yuan. Similarly, a Coach jacket and a Prada hat, retailing for 4,400 yuan and 6,150 yuan respectively in luxury malls, are available on the app for 3,499 yuan and 4,939 yuan.
This price disparity is fueling the growth of the grey market, estimated to be worth $57 billion annually. The market’s expansion is further supported by China’s slowing economy, which has prompted more people to sell their luxury collections for cash. Additionally, the rising prices of luxury brands in official channels are driving cost-conscious consumers to seek alternatives.
The impact on luxury brands has been noticeable. LVMH, the world’s largest luxury group, reported a 3% fall in quarterly profit and its first decline in quarterly sales since the pandemic. Other brands like Salvatore Ferragamo have also experienced falling revenues, particularly in the Chinese market.
Despite these challenges, some luxury brands are resisting involvement in the second-hand market and maintaining their upmarket positioning. LVMH executives, for instance, have stated they have no plans to introduce more affordable product ranges or engage with the second-hand market directly.
The grey market’s growth is facilitated by various channels, including overseas purchases through wholesale networks in countries like Australia and South Korea, where prices are typically lower. These products are then brought into mainland China, where higher taxes contribute to elevated retail prices.
While some brands, particularly those with tightly controlled distribution networks like Louis Vuitton and Hermès, are less exposed to parallel markets, others with larger wholesale channels face greater challenges.
For brands with less controlled wholesale networks, sales on grey market platforms can account for 60-70% or more of their total sales in mainland China.
The situation is complicated by excess inventory and discounting in the global luxury market, much of which is finding its way to China through various routes, including duty-free channels in Hainan and imports from Japan, benefiting from a weak yen
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