China’s Luxury Market Faces Challenges from Second-Hand and Grey Markets

China’s luxury market is grappling with the rapid rise of second-hand and grey markets, posing significant challenges for high-end brands. In a slowing economy and with rising brand prices, Chinese consumers are increasingly turning to more affordable alternatives, raising concerns for global luxury giants like LVMH.

Price Gaps Fuel Grey Market Growth

Max Piero, CEO of Re-Hub, a luxury intelligence consultancy, points to significant price gaps between China and other countries as a key driver of grey market growth. This market is valued at an estimated $57 billion annually, with platforms like DeWu offering luxury goods sourced overseas at discounts of up to 50% compared to official Chinese stores.

Slow Retail Sales Impacting Luxury Demand

China’s retail sales have slowed, reflecting a broader weakness in consumer spending. This trend is worrisome for luxury brands, as the Chinese market accounts for around 25% of their global revenues. With fewer Chinese consumers buying at official outlets, the shift towards second-hand and grey market purchases is becoming more apparent.

Second-Hand Market Spurs Consumer Shift

As luxury brand prices rise, more consumers are turning to the second-hand market for better deals. Platforms like ZZER and Plum are growing in popularity, and the number of sellers continues to expand, leading to a decrease in average purchase prices. However, certain luxury brands, such as Louis Vuitton and Coach, are still in high demand, even as the market shifts.

LVMH Stands Firm on Upmarket Strategy

Despite these market challenges, LVMH remains committed to its premium strategy. The company has ruled out launching more affordable product lines, focusing instead on tight distribution control to minimize exposure to second-hand and grey markets.

Economic Slowdown Boosts Second-Hand Market

China’s slowing economy has contributed to the growth of the second-hand luxury market, with more people selling off luxury items to monetize their collections. Zhu Tainiqi, founder of ZZER, notes that while the number of sellers has surged, the increase in buyers has not kept pace, leading to lower prices in the market.

Market Growth and Changing Consumer Behavior

Consultancy iResearch estimates that China’s second-hand luxury market has grown by over 30% annually since 2020. However, Zhu projects that growth may slow to around 20% this year. Interestingly, many consumers participating in the second-hand and grey markets are not abandoning new luxury purchases entirely but are instead splitting their consumption between new and pre-owned items.

Importance of Authentication

In the second-hand market, authenticity remains a critical factor for consumers. Zhu emphasizes that trust in the authenticity of luxury goods is essential, as it increases the attractiveness of the deals on offer. Brands and platforms that can guarantee genuine products are more likely to capture consumer interest.