With the Chinese economy in a downturn and consumer spending sluggish, an increasing number of middle-class consumers in China are taking a cautious approach to spending on luxury goods, leading to major discounts of up to 50% on brands like Burberry and Versace on Chinese e-commerce platforms.
This price war was previously unimaginable a few years ago, as the growth of luxury brands was built on their unique image and product value retention.
Luxury brands typically clear their inventory at outlet malls or through private sales, making significant discounts on platforms like Tmall rare. Whether these discounts can help these brands clear their stock amid subdued consumer sentiment among the Chinese middle class remains to be seen.
According to the Financial Times, in early July, Marc Jacobs, the American brand founded by Marc Jacobs, offered more than 50% discounts on handbags, clothing, and shoes on Tmall Luxury Pavilion, an upscale e-commerce platform under Alibaba. Meanwhile, the Italian luxury brand Bottega Veneta provided a 24-month interest-free installment payment service for handbag purchases on the same platform.
Luxurynsight data shows that in 2024, average discounts on Versace and Burberry products across all distribution channels in China sometimes exceeded 50%, higher than the 30% and 40% discounts in 2023 respectively.
Burberry continues to be impacted by declining luxury demand, particularly in China. The company warned on Monday that retail revenue for the three months ending on June 29 was £458 million ($594 million), down from £589 million in the same period last year.
The company cautioned that annual profits may fall below expectations and announced the suspension of shareholder dividends for the current fiscal year to save capital.
According to Burberry’s latest report, sales in the Asia Pacific region decreased by 23% compared to the same period last year, with sales in mainland China dropping by 21%. Sales in the Americas also decreased by 23%.
Chairman Gerry Murphy acknowledged that these figures were “disappointing” and that the luxury market was “more challenging than expected.” He added that measures being taken by the company, including cost-cutting, will improve performance in the second half of the year.
Amid the challenges facing the company’s sales performance, Burberry appointed Joshua Schulman as its new CEO on Monday.
Discounts may not necessarily be viewed positively by some luxury buyers. Pooky Lee, fashion curator and joint director of the Shanghai creative agency Poptag, was cited by the Financial Times as saying that significant discounts from some brands have changed his perception of their value.
“When people purchase high-end fashion and luxury brands, they often expect them to retain value to some extent,” Lee said.
Luxury brands affected by economic downturns extend beyond Burberry. In March of this year, French luxury conglomerate Kering issued a profit warning, citing a decline in demand for its major luxury brand Gucci in China.
Insiders told Bloomberg that Balenciaga, which is under the Kering Group, offered an average discount of 40% for three months in the first four months of 2024. In the same period last year, Balenciaga only had discounts in January, with an average discount rate of about 30%.
This week, Switzerland’s two largest publicly traded watch groups, Richemont and Swatch Group AG, released data confirming a severe market decline dominated by China.
Richemont announced on Tuesday that sales of the group’s watch brands in the three months ending in June fell by 13%, with the main cause being a 27% drop in sales in Greater China. Swatch Group’s sales in China also plummeted by 30% in the first half of this year, apart from its entry-level brands Omega, Blancpain, and Breguet. Overall sales dropped by 14% and operating profit decreased by 70%.