China’s mass sale of high-end luxury items could impact the UK market, according to some stakeholders.
While much of the world is moving past draconian lockdown measures, the world’s second largest economy continues to be burdened by strict zero-Covid policies.
This is causing wealthy Chinese consumers to sell their prized Rolexes, Hermès handbags, and other high-end goods.
A range of other factors is responsible for China’s lack of luxury appetite, chief among them the nearly 20% unemployment rate of China’s aspirational urban Gen Zers, as well as the debt-laden property market.
Young adults around the world have been "a very strong factor of luxury growth over the past decade," said Gregory Boutte, chief client and digital officer at Gucci-owner Kering.
A recent Oliver Wyman study suggested that China’s Gen Z demographic is responsible for over 80% of growth in the luxury goods market, so the negative consequences arising from a reduction in Gen Z spending were inevitable.
But it’s becoming a loss-making venture for China’s cash-strapped consumers, as the flood of luxury items continues to depress secondary prices by up to 46%.
UK market could be hit
Brian David Crane, founder of digital marketing fund Spread Great Ideas, noted that British Luxury brands increasingly lead the Chinese luxury goods market, a fact “which has affected the share market prices of some of the top brands", he said, citing Burberry Group PLC (LSE:BRBY).
“Analysts rate this as a long-term correction, as the more wealthy sell luxury goods at lower prices to hold more cash,” said Crane, adding: “I believe that these used items being sold at lower prices can dilute the UK market, as it can lead to pricing inconsistencies in the used luxury market.
But Aron Solomon, head of strategy at Esquire Digital and former Beijing resident, said that is nothing new: “It’s not a question of these Chinese luxury goods diluting the UK, US, or EU markets… More often than not they’re the exact goods where demand always far exceeds supply.
As an example, Solomon pointed to the coveted Rolex Cosmograph Daytona.
“No amount of authentic papered Daytonas leaving China for the UK will dilute that market - it will only make a dent in demand and reduce waiting times,” said Solomon.
And those waiting times are only going up in the UK.
As reported earlier this month, Rolex’s largest UK dealer Watches of Switzerland Group plans to increase its retail space eightfold in 2023.
The dealer’s chief executive officer Brian Duffy noted that interest lists continue to expand “despite well-publicised concerns about the macro environment,” likely due to high-net-worth individuals seeking out alternative investment classes to store their cash while equities continue to fall out of favour.
What do second-hand smartphones and Rolexes have in common?
Steven Athwal, director of The Big Phone Store, notes a knock-on effect arising from the increase in UK consumers purchasing refurbished mobile phones.
According to Athwal, his company historically exported vast amounts of used mobile phones to Hong Kong which then ended up on the Chinese mainland, but this trend has dropped off sharply.
“This has led many traders based in Hong Kong to switch industries and export luxury goods procured from China,” Athwal told Proactive.
As such, he has been offered luxury timepieces, predominantly Rolexes, for up to 15% below what they can be bought for in the UK.
“With the British pound trading low against the US dollar, some models are up to 20% cheaper”, stated Athwal.
Shares in Burberry were up over 2% by midday on Tuesday and Watches of Switzerland 1.2%.