From DeWu to Wuhan's Malls: A Glimpse Into Effective Luxury Selling Strategies

The last two weeks have brought two eye-catching stories to the luxury retail sector. Though seemingly unrelated, both events shed some light on the question: "How can luxury goods be sold effectively?"

 

First off, DeWu has become a powerhouse for selling luxury items. Bloomberg sources report that in the first half of this year, DeWu's sales of Louis Vuitton products increased by 11% to 2.6 billion yuan, about 358 million USD. With LV's domestic sales already at about 2.5 billion USD, adding DeWu’s figures means LV’s total revenue in China could have risen by over 14%.

 

 

Bloomberg also noted that other luxury brands like Dior, Hermès, Chanel, and Prada enjoyed significant sales boosts on DeWu in the first half of the year, all achieving double-digit growth from the year before.

 

Secondly, Wuhan saw a massive luxury discount sale earlier this month. Wushang MALL, Wuhan Henglong Plaza, and Wuhan SKP all launched promotions for the Qixi Festival, sparking a surprisingly vibrant market response. Leading brands saw long lines and some stores even sold out completely.

 

These two cases—from online platforms to physical stores, appealing to both trendy youth and traditional department store shoppers, and from central China to the national scene—collectively demonstrate that if price concerns are addressed, Chinese consumers remain enthusiastic about splurging on luxury goods.

 

On DeWu, a black Chanel CF bag is listed at 54,679 yuan—25,000 yuan less than in-store prices. The always-out-of-stock Chanel 22 bag is almost 7,000 yuan cheaper, and the popular LV Carryall is being offered at roughly 20% off.

 

 

Even though most of DeWu’s luxury items come from other channels, fashion fans continue to crowd the platform, driven mainly by these price cuts.

 

In Wuhan’s promotional war, the three malls offered basic deals like cashback on spending over a thousand yuan and bonus points, which, while not new, effectively allowed consumers to save significantly. They got deals on authentic products from Gucci, LV, Loro Piana, Dior, Prada, Van Cleef & Arpels, Cartier, Bulgari, and Tiffany—even Hermès—at effective discounts through legitimate channels.

 

In essence, although there were no direct markdowns, after shoppers bought their bags, they received mall vouchers equal to a certain portion of the purchase price. If these weren’t spent on other stores within the mall, scalpers were ready to buy them with cash, making it as if consumers got their new luxury bags at about 15% off.

 

 

Clearly, such "discounts" not only strongly appeal to those torn between aspiring for luxury and navigating economic pressures, but also give a sense of urgency that validates their high-end purchases.

 

Unlike DeWu's approach of partnering with grassroots initiatives to enhance luxury sales capabilities, the subtle discounts at Wuhan’s major malls are more of a strategic partnership between the malls and the brands themselves. This strategy not only showcases the irresistible allure of luxury goods but also highlights how sellers, including brands and mall owners, are collaboratively pushing hard amid concerns about slowing growth rates.

 

Reflecting on the luxury market's performance in the first half of this year, only a few brands like Prada and Hermès outpaced their competitors. In contrast, giants such as LVMH, Kering, and Richemont faced downturns, especially pronounced in the Chinese market.

 

Weaker sales from these brands have a direct impact on the rental revenues for mall owners.

 

For instance, Shanghai Henglong Plaza has a rental agreement with its tenants that mixes a significant fixed rent with a smaller revenue-based commission. Should the tenant's sales dip, so does the mall's income from rent.

 

On July 30, Hang Lung Properties reported their mid-year earnings for 2024, noting a 7% decrease in property leasing income to HKD 4.886 billion, influenced by weaker luxury goods consumption in mainland China, slower retail and office sectors in Hong Kong, and the RMB's depreciation against the HKD. This highlights how dips in luxury sales can directly affect the financial health of mall owners.

 

 

This rent collection model is common among mall owners across China, who rely on the sales performance of brands to enhance their rental earnings. The competitive discounting among Wuhan's three major malls reflects this very business strategy.

 

In recent years, luxury brands have significantly raised their prices to appeal to their wealthiest customers, inadvertently distancing the more numerous potential entry-level consumers. During a market downturn, offering various forms of discounts is a straightforward and effective strategy to regain customer interest, although it might risk the brand's image. For instance, Burberry's recent 5% price cut on all Daniel Lee-designed bags was widely seen as the brand shifting towards a more down-market stance.

 

For luxury brands, leveraging mall events to provide subtle discounts is a more tactful and graceful strategy than outright price cuts. Moving forward, it's likely that brands will soften their approach to price increases, avoiding drastic cuts to preserve their image, yet activities like those seen in Wuhan's malls might become more common across other Chinese cities. These tactics will likely be implemented more covertly and with greater precision.

 

Interestingly, as outsiders envied Wuhan locals for their easy access to these deals, LV pulled out of the Wushang Mall promotion, prompting some shoppers to start initiating returns. It's clear that once LV achieved its quick profits, the brand quickly shifted focus back to upholding its prestigious image.

 

In maintaining this prestige, platforms like DeWu present a complicated challenge for luxury brands—a thorny issue that they must address seriously yet struggle to resolve smoothly.

 

The rise of platforms like DeWu has notably impacted the sales performance of brands' own retail stores by circumventing traditional sales channels.

 

These platforms, along with luxury sellers, import luxury goods in bulk from wholesale, duty-free, and direct-operating channels abroad. They exploit low pricing strategies, leveraging exchange rate and tax disparities to offer products at reduced prices directly to their users, effectively sidestepping the brands' established local markets. This strategy not only dilutes consumer spending power but also renders the substantial investments brands make in domestic retail and brand image largely futile.

 

 

More profoundly, the presence of platforms like DeWu undermines the luxury brands' efforts to maintain their exclusive, high-end image. These platforms act as unofficial dealer channels, controlling the final prices of the brand's products—whether they raise or lower them—without the brand's consent, directly affecting the brand's prestige and market positioning.

 

In response, luxury brands are tightening control over their distribution channels. High-profile brands such as Chanel, Hermès, and LV have completely severed ties with dealers to protect their image. Others, including Burberry, Prada, and Gucci, with significant wholesale operations, are progressively cutting back on these as well, with Burberry, for example, announcing a 30% reduction in its wholesale operations.

 

But these strategies are also complicated by their own issues of overproduction.

 

China's robust market resilience and strong consumer spending during the pandemic led brands to overestimate post-pandemic demand, resulting in high inventory levels that backfired as the market cooled. Consequently, finding ways to broaden sales channels and clear stock has become pressing.

 

In this regard, platforms like DeWu are proving to be a substantial aid to luxury brands.

 

The DeWu platform, known for its dual focus on social networking and trendy online shopping, originated from a community dedicated to sneaker authentication and trend culture. With its expansion into e-commerce, DeWu has strengthened its "multiple verification and authentication" processes, creating a trust-based relationship with its users centered around genuine products. Although DeWu has faced several accusations of selling counterfeit items in recent years, its consistent engagement with youth trends and community culture has helped it amass over 100 million registered users, with a significant 88% being millennials and Gen Zers.

 

With its strong following among the youth, DeWu has attracted collaborations with brands such as Kering Eyewear, Coach, Michael Kors, Zenith, Pinko, and Breitling. It even hosted LV's first livestream during their 2023 Spring/Summer Men's Show, bolstering its legitimacy in the luxury market and appealing to a broader, younger audience.

 

Re-Hub's report indicates that as of last August, DeWu commanded 73% of China's luxury resale market, overshadowing other platforms.

 

This burgeoning channel offers luxury brands a new avenue for growth and may well reshape the online luxury market landscape in China.

 

From Chinese tourists raiding Japanese luxury stores to surging luxury sales on DeWu and long queues in Wuhan malls, these phenomena might seem unconnected but collectively underscore a persistent consumer interest in luxury goods in China, driven largely by cost savings. Even affluent buyers relish finding value through discounts.

 

Today, engaging entry-level customers is as crucial for luxury brands as catering to wealthier patrons. Balancing prestige with profitability has always been crucial, and as the brands tackle sluggish growth, managing these dynamics has never been more challenging.