Luxury brands in China are reportedly resorting to “unprecedented” discounts to sell unsold inventory and entice cautious Chinese consumers.
The price cuts reflect growing concerns over a slowdown in spending among local shoppers, Bloomberg reported Friday (June 14).
Balenciaga, a part of French luxury conglomerate Kering, has been offering discounts of up to 40% on sale items in the first four months of 2024, compared to an average discount of 30% during the same period last year, according to the report. Other brands such as Versace, Givenchy and Burberry have slashed prices, some by more than half, on various eCommerce platforms.
The price war is a departure from the traditional strategy of luxury brands, which typically clear stock through outlet malls or private sales, the report said. The decision to offer deep discounts on flagship platforms like Tmall, China’s dominant eCommerce platform, is seen as risky by industry experts.
The discounts come as luxury brands face challenges in the Chinese market due to an economic slowdown and changing consumer behavior, per the report. China’s middle class, a key segment of the luxury market, is becoming more frugal and cautious in their spending, opting for sales or refraining from major purchases.
Additionally, high return rates on platforms like Tmall have further complicated the situation, according to the report. Some shoppers take advantage of promotional campaigns to obtain discounts and then return some of the items.
While some luxury brands are resorting to discounts, others are taking a different approach, the report said. High-end brands like Hermes, Chanel and Louis Vuitton have refrained from offering public discounts on eCommerce platforms and instead focus on cultivating high net worth clients. These brands have limited exposure to eCommerce and prioritize exclusivity, making them less vulnerable to economic downturns.
The weakening demand from Chinese consumers has already impacted luxury earnings, per the report. Kering, the parent company of Gucci, warned of a potential profit drop of up to 45% in the first half of 2024 due to weak sales in China. Burberry’s stock has plummeted in the past year due to weak demand in China and the United States.
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