China signals the possibility of a slump in the luxury market

The luxury industry enjoyed two years of great success during the global flu pandemic, but will inflation and the possibility of a recession slow this growth?

Going home with photographer markus wachter and model Valia Khamenya

China is now one of the most important markets for the luxury fashion industry. As the world’s factory, this market always has cash flow in abundance. Therefore, Chinese customers often spend money and buy luxury fashion.

Since the COVID-19 pandemic began two years ago, the luxury industry has posted record sales. Consumers who cannot travel should spend their entire travel budget to buy expensive items. Especially in the Chinese market, the trend of revenge buying to satisfy the confinement like being confined at home has helped bring outstanding revenue to the luxury industry.

However, in 2022, even though many countries around the world have overcome the pandemic, China is still facing a dire situation. This summer saw many consecutive times of social distancing in Shanghai and Hainan. The data showed that the country’s economy weakened in July, barely growing in the second quarter of 2022. The unfavorable situation led the Central Bank of China to reduce lending rates in August 2022.

Even high-net-worth individuals from the upper classes fear that China will fall into a recession. If two years ago, they spent their money on luxury goods, now they are also quick to sell luxury goods to hoard cash.

According to JingDaily, China’s second hand market is full of luxury products such as Rolex watches or Hermès handbags. However, because supply is higher than demand, their prices in the second hand market have decreased. For example, a Rolex Submariner watch has a transfer price as low as 46% of its peak price. Hermès Birkin, once considered a better investment than gold, saw its transfer price drop by about 20%.

The decline in the selling price of luxury goods has also been seen in Western countries, after the stock market and virtual currency crash caused many people to get rich by these means to sell off their luxuries. products to store cash.

In addition to the prospect of an economic downturn, the dizzying rise in prices of luxury products – because of rising costs, taking advantage of good revenue opportunities, and rebranding – makes many consumers hesitant. Brands under the LVMH group have adjusted their prices twice this year separately. Chanel has increased prices by 60% since last year.

Chinese social media also trended the hashtag “Since when did Prada get so expensive,” as many consumers marveled at the new price of Re-Nylon handbags . They argue that the new price is too high because the bag is not made from a luxurious material such as leather, nor is it considered an investment product to keep prices in the second hand market.

According to research from investment bank Barclays, sales of luxury goods in China have dropped by 40% in the past three months. When consumers realize that items they consider a good investment don’t hold up well in the second hand market, they stop shopping for luxury fashion in favor of classic assets like gold, diamonds, real estate.

Luxury brands, although prioritizing China, are always looking for ways to expand the market so as not to depend too much on this one large market. Korea has emerged as a new option. According to financial advisor and market research firm Samjong KPMG, South Korea is among the top 10 largest luxury fashion markets globally, with purchasing power increasing by 29.6% to reach US$5.8 billion in 2021. However, this purchasing power is nowhere near that of the US (64.1 billion), China (42.7 billion) and Japan (26 billion).

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