Bain & Company said in a press release that after its worst third quarter results, the fourth quarter’s results were expected to improve, primarily due to the announcement of upcoming economic stimulus and the expected impact on consumption. He said there was a slight improvement.
Due to weak consumer confidence and increased overseas spending, China’s luxury goods market will decline by 18-20% year-on-year in 2024, returning to 2020 levels. Duty-free sales in Hainan province fell by 29%, but overseas luxury shopping soared due to price disparity. The Omizo gray market grew by 5%, impacting revenue. Bain expects the economic downturn to continue in early 2025, before stabilizing in the second half of 2025.
The price difference between the domestic market and other markets was the main factor behind the resurgence in luxury spending abroad. The recovery in overseas luxury spending by Chinese tourists has been remarkable, accounting for 40% of total Chinese luxury spending in 2024.
Specifically, overseas spending in 2024 reached about 50% of 2019 levels in Europe and about 120% above 2019 levels in Asia-Pacific. However, the increase in overseas shopping was unable to offset the decline in domestic sales, resulting in a 7% decline in China’s total luxury goods spending.
Bruno said: “The economic downturn is primarily due to economic uncertainty and lukewarm consumer confidence due to falling real estate values, a shift in spending to overseas markets, and acceptance of frequent price hikes by brands without a fully justified value proposition. “It’s caused by reluctance.” Mr. Lannes is a senior partner at Bain & Company based in Greater China.
“The market is undergoing a period of turmoil and uncertainty, with only a few brands emerging as winners and widespread underperformance likely to become the norm. Most brands are unlikely to expand or raise prices. Instead, they will need to focus on footprint consolidation and performance improvement measures,” Lannes added.
The price difference between luxury goods in mainland China and other markets, especially Japan, was a key factor in the resurgence of overseas luxury shopping in 2024. A sample analysis of key products from mainland China, France and Japan reveals large price differences in different markets. Luxury shopping abroad becomes even more attractive, especially with favorable exchange rates. At the lowest point of the yen and renminbi, the price difference with domestic prices reached up to 30 percent.
Historically, in response to this trend, some brands have implemented global pricing strategies to offset most of the exchange rate fluctuations. This year, other brands addressed these price disparities by introducing in-store purchasing limits and standardizing new product prices globally (in Q4).
Due to ongoing government and brand measures against Daigou trade and shifts in tourist flows to Japan due to favorable exchange rates, South Korea’s duty-free sales are down 3% year-on-year, with an average basket down around 40% I’m doing it.
The overall gray market rose by about 5 percent in 2024. Favorable exchange rates, price discounts and promotional mechanisms have reignited the potential for small-scale Daigou operations, but the main source of supply is likely to be large-scale or professional Daigou. According to the brands tracked by Rehab, these brands enjoy significant pricing benefits through wholesale distribution channels.
In the fashion and leather goods categories, Daigou’s share of revenue from regular sales in mainland China can vary from 15-25% to over 60-70%, depending on the brand’s size and control over wholesale channels. be. Notably, discount rates for top products tracked by Rehab on the Daigou platform expanded by approximately 8 percentage points in 2024. This trend raises concerns that the gray market will continue to undermine revenue potential and brand equity in mainland China.
To counter this trend, Bain advises brands to prioritize their strategies for Daigou operations in 2025 and beyond. Business operations in mainland China must work closely with global networks to proactively manage risks associated with Daigou. This can be achieved by optimizing wholesale operations and harmonizing price differences around the world, and focusing on customer relationship management, after-sales service and enhancing the overall customer experience in mainland China.
“After a turbulent 2024, China’s luxury goods market will continue to trend downward into the first half of 2025, with a cautiously optimistic outlook emerging in the second half of 2025, resulting in flat performance for the year as a whole,” he said. I expect it to be.” Weiwei Xing is a partner at Bain & Company based in Greater China.
Fibre2Fashion News Desk (Singapore)
