Luxury labels caught in China’s ‘gray’ zone economy
Global fashion brands feel the heat as economic malaise hits cash-strapped Chinese shoppers
Gray is the new black in fashion-obsessed China. An ideal color to illustrate the economic landscape, dotted with half-built property projects and a manufacturing malaise. Red is also in, highlighting the mountains of local government debt.
Against this backdrop, the second-hand and gray markets for luxury labels are booming as shoppers search for cut-priced brands amid rising costs. Sales in European groups LVMH and Salvatore Ferragamo have taken a hit.
Estimated annually to be worth US$57 billion, the luxury sector “has been fueled by the rise of platforms such as DeWu,” Reuters reported this week.
“[Branded] products, often sourced overseas, are sold at discounts between 20% and more than 50% to Chinese flagship stores,” the news agency said.
“The elephant in the room is that, in China, as long as [global] price gaps exist, there is the opportunity for consumers to go to the gray market,” Max Piero, the CEO of luxury intelligence consultancy Re-Hub, told Reuters.
Sales pitch:
- The second-hand market has exploded since 2022.
- Online sites such as ZZER are doing a roaring trade.
- Visiting second-hand luxury stores has also become a twentysomething trend.
The leadership [is] preoccupied with just keeping the economy afloat.
Jeremy Mark of the Atlantic Council
Delve deeper: The switch underlines the state of China’s struggling economy and stagnating wage growth, as well as unemployment risks. Even a multi-billion-dollar stimulus package has failed to pierce the gloom.
Between the lines: “The [Chinese] leadership [is] clearly preoccupied with just keeping the economy afloat,” Jeremy Mark, of the Atlantic Council think tank, wrote in a commentary earlier this week.
Crisis of confidence: “The measures announced to address the property crisis, falling prices, [a] hoard of local-government debt, and plummeting business and consumer confidence, look unlikely to produce a sustained rebound,” he said.
Big picture: Apart from the economic turmoil, President Xi Jinping’s regime is caught in a tariff war with the United States and the European Union. Washington and Brussels have pushed back against a flood of cheap Chinese tech exports.
China Factor comment: Last year, “affluent Chinese moved hundreds of billions of dollars out of the country.” In July, Forbes reported that “high-net-worth people” were “leaving China.” More reasons why gray is back for luxury labels.