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Michael Kors and other affordable luxury giants succumb to challenges in China

October 18, 2023
in Entertainment
Michael Kors and other affordable luxury giants succumb to challenges in China
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In a year when even the biggest luxury conglomerates like LVMH are experiencing slowing revenue growth, producers of more affordable luxury goods are finding themselves up against a complex set of business challenges. In this two-part series, Jing Daily dissects the data and issues that affordable luxury brands face in China today.

The global luxury market’s recovery has been uneven, as demonstrated by notable disparities in spending across different socio-economic strata. 

In August, two prominent affordable luxury companies reported mixed financial results for the second quarter of this year.

Capri Holdings, the company behind the likes of Michael Kors, Jimmy Choo, and Versace, saw revenue decline 9.3 percent year on year to $1.23 billion, and gross profit declined to $812 million from $901 million the same quarter last year, though gross margin was stable at 66 percent.

A closer look reveals that Versace and Michael Kors posted YoY revenue contractions of 5.8 percent and 13.8 percent, respectively.

Versace opened a limited-time boutique at Beijing SKP earlier this month. Photo: Versace

Meanwhile, Tapestry, the owner of Coach, Kate Spade, and Stuart Weitzman, announced that sales were flat year on year at $1.62 billion for the quarter, slightly missing analyst expectations.

In the pivotal Chinese market, a bifurcation in luxury spending is emerging amid the post-pandemic recovery. Affluent elites are sustaining their level of luxury spending, while middle-class shoppers, battered by economic headwinds, including rising youth unemployment, are exercising more caution.

Top 0.3 percent drive China’s luxury market

According to Yaok Institute’s latest “China Luxury Report,” in 2022, China boasted approximately 5 million affluent consumers, each with net assets surpassing 10 million RMB ($1.3 million). These shoppers, comprising three out of every 1,000 consumers (or 0.3 percentage of the population) in China, accounted for 82 percent of luxury spending.

This elite group contributed about 1.1 trillion RMB ($150 billion) in consumer goods retail sales, or roughly 25 percent of China’s total retail sales. This cohort is more amenable to high-tier luxury brands versus premium brands.

Consequently, luxury conglomerates, recognizing the potent purchasing power of this demographic, have recalibrated their marketing strategies. Top brands like Louis Vuitton and Gucci have subtly retreated from the livestreaming arena, reverting to their traditional domains of fashion shows and prominent billboards. Even early digital adopters like Dior and Gucci have utilized video platforms like Douyin primarily for brand visibility, but not direct sales.

Meanwhile, luxury brands like Dior and Chanel continued to invest in VIP services in China during the pandemic, both opening private salons in Beijing only accessible to big spenders and VICs. Louis Vuitton has also opened an invite-only salon in Beijing’s SKP mall. Often guarded by suit-clad security guards, curious Chinese netizens on Xiaohongshu have dubbed these mysterious boutiques “little black rooms”(小黑屋), adding to their allure.

Xiaohongshu users share their experiences shopping at Louis Vuitton’s private salon at Beijing SKP. Photo: Xiaohongshu

Affordable luxury’s allure dims

With Chinese consumers purchasing one-third of the world’s luxury goods in 2018, affordable luxury brands have made a concerted effort to expand in the country in the past few years — but they have also sacrificed a degree of exclusivity in the process. Coach, for example, joined Tmall in 2019 and offered big discounts of up to 20 percent off to entice shoppers.

However, brands that frequently offer discounts risk creating a perception of diminished value among consumers. 

On WeChat, Chen Wansheng, 35, recalls the prestige of owning a Michael Kors bag a decade ago. The brand was then a symbol of chic and could be seen everywhere on the Beijing subway. Today, because the market is saturated and more sophisticated, the brand’s social status has changed.

Perceived investment value 

And it’s not just affordable luxury brands’ social currency that’s dipped — it’s their resale value, too.

“In my younger years, I purchased a multitude of bags from Coach, Kate Spade, Tory Burch, and Michael Kors,” Chinese shopper Qing Yin (青衿) wrote on Xiaohongshu. “As they’ve become outdated, getting a favorable resale price has proven challenging. I’m full of regret for not investing in timeless pieces like those from Louis Vuitton and instead squandering money on these.”

“I’m full of regret for not investing in timeless pieces like those from Louis Vuitton and instead squandering money on [affordable luxury brands].”

Out of five secondhand luxury retailers Jing Daily spoke to on WeChat, four said they did not accept affordable luxury labels like Coach or Michael Kors. The price of luxury goods is directly related to their supply and demand — their scarcity and exclusivity; affordable luxury goods, which are readily available, are less collectible than high-end luxury items.

As China Certification & Inspection Group Beijing (中检奢侈品鉴师回收寄卖), a secondhand luxury retailer, commented on Xiaohongshu: “Brands such as Michael Kors underscore a poignant narrative in the luxury resale market, where the resale price of affordable luxury bags seldom eclipses $79, irrespective of an initial purchase price, be it $1,260 or $472. With this money, why not buy a secondhand bag from a big brand?”

Items from affordable brands like Michael Kors and Kate Spade struggle to retain their value in the resale market, Xiaohongshu user @Naihuangbaojiliu (奶黄爆击流), a retailer of secondhand luxury goods, noted on the platform. 

Kate Spade bags typically do not resell for a high price in China. Photo: Kate Spade

“Most secondhand luxury retailers cautiously sidestep the reselling of affordable luxury items, primarily due to the constricted profit margins and an apprehension of encountering disdain from the original owners,” she posted in March of this year.

A resale Michael Kors bag peaks at a mere $63, while secondhand Kate Spade items hover between $16 and $31.

In China’s secondhand luxury goods market, the price of affordable luxury goods is usually one-tenth of their original retail price, or lower, depending on the product line. For example, there’s a difference in quality, style, and thus price between goods sold at boutiques and those sold at outlet stores.

Prudent luxury spending: A new paradigm

Undeterred by financial limitations, Chinese consumers still seek premium products and experiences as ways to express their social status and identity. The difference now is that they’ve become shrewder about maximizing the value of their expenditure.

Discerning consumers are recalibrating their spending habits, with some opting for a strategic blend of high-end accessories and affordable luxury apparel to strike a balance between aesthetics and financial responsibility.

Pairing Chanel earrings with a Coach coat, for instance, emerges as a budget-friendly way to achieve that high-luxury look, sidestepping the ever-rising prices of classic handbags at Chanel and LV. 

As WeChat user @Su Nan (苏南) observes: “Affordable luxury bags draw criticism, while their clothing does not.” 

Part two will be published next week.

>>> Read full article>>>
Copyright for syndicated content belongs to the linked Source : JingDaily – https://jingdaily.com/affordable-luxury-china-resale-tapestry-capri/

Tags: AffordableentertainmentMichael
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