The last enemy of luxury: 40% discounts on Chinese resale sites / Dewu, the new platform where cheap luxury is sold

Luxury manufacturers such as LVMH and dry facing a rapidly growing problem in China: a gray market that offers authentic new products found in other countries at deep discounts from mainland prices, with discounts of up to 40 percent.

Currency fluctuations and rising price awareness among Chinese consumers have breathed new life into luxury arbitrage, dominated by a so-called e-commerce platform dew, surrender BoF.

The value of Louis Vuitton products sold through Dewu increased by 11%, reaching 2.6 billion yuan ($358 million) in the first half of 2024 compared to the same period last year, people familiar with the matter said.

That represents more than 14 percent of Louis Vuitton’s total sales in China of 2.3 billion euros ($2.5 billion) for the same period, said the people, who spoke on condition of anonymity. BoF.

Sell ​​products from other brands, such as Christian Dior, Hermès, Chanel and Pradahas also seen double digit growth in the first half of this year onwards Dewcompared to the same period last year, the individuals said.

Dewu’s growing influence is bad news for the global luxury giants, which are already facing sluggish growth in China. While the products resold on the platform were officially purchased from brands in other countries, contributing to revenue, the parallel imports will that erodes profit margins and destroys the billions of dollars that fashion houses have invested in building stores and operations in China, reports. BoF.

It is not clear whether the luxury houses are aware of the size of the strike market in China, although executives have pointed out the danger of another form of parallel imports: Chinese travelers are saving up to travel abroad, especially in Japan, where the weak yen has made shopping cheaper.

“For now we still see a lot of Chinese travelers, especially in Japan, which basically says something about the appetite of Chinese consumers for our brands,” said LVMH Chief Financial Officer Jean- Jacques Guiony on an earnings call last week. “But this comes at a huge cost from a profit and margin perspective.”
LVMH sales in the region that includes China fell 14 percent in the quarter to June, but rose 57 percent in Japan. “

With the yen at a 34-year low against the euro, this means that a large part of the increase has taken place at a lower price, Guiony said, reports BoF.

At Kering, revenue in Asia-Pacific fell 22 percent in the first half of the year, mainly due to the worsening situation in China, compared to a 22 percent increase in Japan, Chief Financial Officer Armelle Poulou said at a briefing on the results. Last week. A third of Chinese consumer spending took place overseas in the second quarter, particularly in Asia, including Japan, she said.

“Dewu is the digital version of a flight to Japan,” said Jacques Roizen, managing director of China consultancy Digital Luxury Group. “Prices you get in Japan, you get on Dewu.”

According to a report by the consulting company Re-Hub, Dewu represented 73% of China’s gray market revenue for the top 10 luxury brands in key categories last August. The smallest stock share of Alibaba Group Holding Ltd. for 26%.

• Dewu, LVMH, Chanel, Kering and Hermès did not respond to requests for comment. Prada declined to comment.
• Kering shares fell 7.8% as it warned last week of another drop in profit in the second half of the year.
• LVMH shares fell 7.2% since their results in the first half, which were announced in the middle of last week, missed the expectations of analysts.

Discounts and validators

Sellers on Dewu source luxury goods from stores or online platforms in other countries and ship them to China. Due to high luxury taxes and the imbalance between brand prices in China and the rest of the world, exacerbated by the Covid lockdown period, the trade is profitable for the parallel importers that is called “daigou”, even after shipping charges and discounts.

For Dewu, the Chanel flap bag black, classic, large size sold at a discount of 33%, nearly 30,000 yuan ($4,130) cheaper than the official price in China.

oh Louis Vuitton Carryall Bag small brown with its iconic monogram print – one of the most popular pieces in the country this year – on sale for 20% off.

Over 4,000 bags have changed hands in the past three months alone. Such discounts are very attractive because these major luxury brands almost always offer promotional price cuts.

Formerly known as Poizon, Dewu was founded in 2015 by CEO Yang Bing as a sneaker resale marketplace. The platform has attracted a growing base of young, tech-savvy users thanks to its unique operating model – only sellers offer the lowest prices and provides inspectors who inspect each item before it reaches the buyer.

On Chinese social media, it is full of tutorials on how to sell luxury goods on Dewu. One such video shows the entire process of buying a Gucci belt for 315 euros ($341) overseas, sending it to China via Hong Kong, then selling it on Downfor and reselling it on Dewu for $460 – with 20% cheaper than the official price in the country.

According to the Re-Hub report, overall, the daigou gray market in China is estimated at 81 billion dollars for all industries, with the luxury sector playing a leading role. Unlicensed sales could account for up to 70 percent of the official turnover of some brands in mainland China, according to a Bain & Co. report. from March.

Importers have also turned into well-organized professional businesses, Re-Hub said. They have significant purchasing power and can access many luxury products through wholesale, duty-free or retail channels of the brands, according to the report.

While major luxury brands such as Hermès, Louis Vuitton and Chanel strictly control access to their most popular items, others are now scrambling to deal with the problem. Burberry Group Plc, which got nearly a fifth of its revenue from store sales in the year that ended in March and wants to cut that percentage by 30 percent, while Kering and Prada SpA has also said that they are moving away from that type of sale.