“All luxury categories underperformed” in China in 2024, “with beauty doing better and watches and jewelry performing worse,” Bain & Co. asserted in its latest luxury report, which looks exclusively at the Chinese market. The market consultancy found that “only a very small number of brands enjoyed growth in China in 2024,” noting that the success of these companies “is not driven by scale, as we see small and large brands among the winners.”
> In a nutshell, Bain states: In 2024, the Chinese mainland luxury market “experienced a significant decline of 18%–20%, reverting to 2020 levels due to low consumer confidence and increased overseas spending … particularly in Japan and Europe.”
Of particular interest for me in the report is Bain’s focus on price differentials and daigou. A few of the relevant excerpts on these issues are as follows …
> The pricing disparities between luxury goods on the Chinese mainland and other markets, particularly Japan, disrupted the mainland market and played a crucial role in the resurgence of overseas luxury shopping in 2024. A sample analysis of key products across the Chinese mainland, France, and Japan revealed significant price differences across various categories, making luxury shopping abroad even more appealing, especially under favorable exchange rates.
> Historically, in response to striking price differences, some brands have implemented a global pricing strategy to offset most of the exchange rate fluctuations. This year, other brands addressed these price disparities by implementing purchase limits in stores and aligning new product prices globally (in the fourth quarter). Ensuring more controlled global price difference and swift reactivity should be a top priority for luxury leadership teams in this turbulent macro environment.
> Daigou activities significantly contribute to Chinese consumer spending. According to brands tracked by Re-Hub, the overall grey market grew by approximately 5% in 2024. However, price indexes for Japan and France indicate that these markets are not likely to be the primary sources for top items sold in the grey market.
> Favorable exchange rates, pricing discounts, promotion mechanisms, and so on have reignited the potential for small-scale Daigou operations to blossom. However, the main source of supply is likely from large-scale or professional Daigou who benefit from substantial pricing advantages through wholesale distribution channels.
> Discounts for the top products tracked by Re-Hub on Daigou platforms deepened by approximately eight percentage points in 2024. This trend raises concerns that the grey market will continue to undermine revenue potential and brand equity on the Chinese mainland.
> To counteract this trend, brands should prioritize addressing Daigou operations strategically in 2025 and beyond. This can be achieved by optimizing wholesale operations worldwide; harmonizing price gaps; and focusing on enhancing customer relationship management, aftersales services, and overall client experience on the Chinese mainland.
The run up to Donald Trump’s second presidency has been rife with talk of tariffs that he has vowed to impose on imports into the U.S., with China expected to bear the brunt of the impact. This week (his first in office), Trump stated that in addition to China, his administration plans to roll out tariffs for goods coming from the European Union – something that would hit many fashion and luxury industry entities.
> Louis Vuitton, for one, may be in the clear to some extent, as LVMH’s largest player maintains several stateside factories, including one that it opened in Texas in 2019 during Trump’s first Presidential term. Bloomberg reported at the time that the factory opening was a demonstration of LVMH “following through on a pledge to create more U.S. manufacturing jobs, part of plan by Bernard Arnault, chairman of the French luxury conglomerate, to hedge against trade tensions and build on the rapport he has established with Trump.”
Any Trump-imposed tariffs – namely, 25 percent tariffs against Canada and Mexico and duties on China and the EU – are subject to a new February 1 deadline.
> The De Minimus Loophole: In the meantime, a new tariff angle is making headlines in connection with Trump: the de minimis trade loophole that allows for importers of goods valued at less than $800 to benefit from a duty-free exemption and less strenuous customs inspections. While Trump emphasized the reliance on this trade loophole by importers of illicit drugs as the key motivator for potentially clamping down on its applicability, the effects of a modification of the rule will not just hit importers of fentanyl precursor chemicals. Ultra-fast-fashion companies like Shein and Temu have become some of the poster children for de minimis loophole benefits.
The loophole has already been the subject to discussion among lawmakers in recent years, with more than one group of lawmakers looking to crack down on the loophole in 2024. In addition to calls to examine the trade policy, there have also been a flurry of bills introduced to address de minimis imports. Rep. Blumenauer, for example, introduced legislation to exclude China from the loophole. Sens. Bill Cassidy (R-LA) and Michael Bennet (D-CO) introduced the Americans Trade and Investment Act in March, which endeavors to close the de minimis loophole, among other things.
Meanwhile, two bills presented to the Senate in June 2023, the Import Security and Fairness Act and De Minimis Reciprocity Act, would amend the Tariff Act of 1930 to “close a key loophole” that foreign companies exploit to avoid paying duties and fees to unfairly compete in the U.S. marketplace.
Similarweb published a report of its own recently in furtherance of which it identifies the top 100 fastest-growing digital brands in the United Kingdom based on year-over-year web traffic and app download growth. The biggest standout in the report, which Similarweb says “offers a clear snapshot of current UK online shopping trends across ten key categories, including Apparel & Accessories, Food & Drinks, Home & Garden, and more,” comes by way of the growth of a resale-centric entity.
> The role of resale: In the Apparel & Accessories category, Similarweb found that Kicks Crew – the secondary market platform for sneakers and apparel – experienced the highest growth, with traffic to its website rising 135 percent year-over-year. The significance of Kicks Crew’s growth? It is the latest demonstration of the enduring demand for – and staying power of – the resale market.