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China’s grey market is dominating luxury brands’ online sales

by Stephanie Irvin
in Real Estate
China’s grey market is dominating luxury brands’ online sales
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CHINA’S grey market – where brand new, authentic products are sold at steep discounts – is increasingly dwarfing some global luxury giants’ official sales channels in the country’s dominant e-commerce space, according to a new report.

For high-end outdoor wear labels Moncler and Canada Goose, sales for some of their most popular products were 2.5 to 15 times higher on Dewu – China’s largest grey market platform – than in their official stores on the e-commerce platform Tmall during the peak shopping season from October to March, data consultancy Re-Hub said in a report released on Tuesday (Sep 3).

Dewu’s growing popularity is weighing on the share prices of powerhouses from LVMH to Kering, which have seen their profit margins squeezed by the trend. By shopping in the country’s parallel market, consumers are essentially buying high-end items at steep discounts from overseas, bypassing the domestic channels that brands have invested heavily in building and maintaining.

Re-Hub did not exclude returns and cancellations for Dewu sales, while the Tmall numbers are net of those factors.

Luxury jewellery makers Cartier and Van Cleef & Arpels also saw as much as 6.8 times more sales on Dewu than on Tmall, owned by Alibaba Group Holding, in the first half of this year, according to the report.

Cie Financiere Richemont’s Cartier has seen its best-selling products sold at discounts of as much as 54 per cent – among the biggest on Dewu – in the first half of this year, according to the report. On the date of the analysis, Aug 22, a Cartier ring that sells for 18,200 yuan (S$3,347) officially in mainland China was touted on Dewu for about 66 per cent less.

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Such offers are becoming increasingly appealing to China’s middle-class consumers, who have turned more price-sensitive in the face of an economic slowdown and property market crash.

On the same day, a Fendi handbag with an official price of 29,500 yuan was sold for half that on Dewu, while popular items by brands from Louis Vuitton to Dior, Gucci and Prada were sold for 20 to 40 per cent less, according to the report.

For some items, prices on Dewu were much lower than official prices in Japan and France, indicating price arbitrage during travels to take advantage of weaker currencies and lower taxes is just part of China’s grey market growth story. Deepening discounts could be a result of brands raising official prices over time or resellers having direct links into brands’ distribution networks, allowing them access to lower prices, Re-Hub said in the report.

Some brands have taken measures to stop the growth of the grey market, the report said, citing anecdotal evidence. Some brands such as Louis Vuitton have systems in place to identify individual traders in stores and to blacklist them as buyers, according to Re-Hub. Other measures include tightening wholesale channels and tracing the product flow into China. BLOOMBERG

Tags: BrandsChinasDominatingGreyLuxuryMarketOnlineSales
Stephanie Irvin

Stephanie Irvin

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