Luxury Goods Under Pressure: China's Second-Hand Boom as a Response to Price Increases

The flourishing second-hand and gray markets in China are shaking up the luxury goods segment as consumers seek affordable alternatives amid rising prices. This presents a challenge for industry giants like LVMH, after the company recorded a 3 percent decline in quarterly profit—the first such setback since the pandemic. Salvatore Ferragamo is also struggling with declining sales, affected by the weakening demand from China. The creeping rise in prices is causing price-conscious Chinese consumers to turn to the gray market. Platforms like DeWu offer imported luxury items at discounts ranging from 20 to over 50 percent, thereby promoting a market whose volume has now grown to an estimated USD 57 billion. DeWu alone recorded an annual growth of 19 percent in the second quarter. Consumer restraint is reflected in a modest growth of 3.2 percent in Chinese retail sales, which does not bode well for global luxury corporations that heavily rely on the Chinese market. Meanwhile, LVMH's leadership emphasizes that despite these challenges, they have no intention of offering their luxury goods cheaper or in the second-hand sector. Nevertheless, the secondary market is flooded with a surge in offerings, while the number of buyers remains largely stable. The rapid increase in sellers is driving down prices, even though brands like Louis Vuitton and Coach remain popular. Marketplaces like ZZER and Xianyu have experienced strong growth since 2020, although growth rates threaten to flatten this year. Instead of shifting overall consumption, many customers tend to transfer only parts of their purchases to the secondary market, provided they find attractive deals and trust the providers. Despite the current challenges, the outlook on the luxury goods market remains exciting, as players must adjust their strategies to successfully navigate changes in consumption trends.