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- 18 Jun 2010
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Chinese Love Affair with Second Hand Luxury

Like the Japanese before them, mainland Chinese shoppers are demonstrating a penchant for a bargain.

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Second-hand luxury online and physical stores are nothing new to Hong Kong, but in mainland China they are a novelty growing in quantity and popularity. And with great potential for further growth. The stores have an obvious appeal for aspirational buyers, but reportedly richer consumers are also attracted by the possibility to spend less while still getting a luxury fix.

Last season’s ‘It’ bags have obvious second hand potential. Both online and physical stores are selling handbags from LV, Gucci, Prada and Chanel for anything from a few thousand to tens of thousands of yuan. Price setting is a fairly complex business with sellers having to take into account, standard value depreciation, origin, edition, style, year of production and so on. Although some limited edition or commemorative pieces will have an inflated value, on the whole pieces are selling at 30-70% less than the full price. But the high turn over means profits for store-owners are impressive too.

It is a trend that indicates the maturity of the Chinese luxury market, and which, accordingly, shares several parallels with the recent habits of Japanese consumers. The consultancy firm McKinsey published a report last year on the Japanese luxury market which acknowledged the “broader range of channels” being used by Japanese consumers. Whereas department stores once had a monopoly on luxury shopping, McKinsey found that while main channels were suffering, factory outlets and other discounted channels had seen significant growth. Their summary was that “luxury consumers remain brand loyal but are buying on promotion.” This recent trend in China, suggests that Chinese shoppers are also becoming more creative in the way they source their luxury goods. Equally, a second-hand cycle also indicates the sort of multi-tiered luxury market that develops within a mature economy.

In discussing the various ‘trading down’ trends the McKinsey report expressed caution about the long-term impact this might have on price points. In the Chinese scenario concerns are primarily focused on the problem of counterfeiting. A lucrative business in China, some of the fakes are such good quality that they can be almost impossible to detect. Both store owners and consumers need sharp eyes to separate the genuine pieces from the fakes.

Sources
Jing Daily
McKinsey & Co.