Struggling Spree: China's Middle Class Locked in a Vicious Cycle of Frugal Luxury Spending
Ultra-affordable Handbag Delights Shoppers with Its Luxurious Appeal - Retailing at an astonishing 27 euros.
China's economy is witnessing a storm of discount wars, with the second-hand luxury market flourishing and revealing a newfound price awareness among the crisis-stricken middle class. Beijing is growing increasingly apprehensive about a potential general price decline.
Mandy Li, an energy firm employee in China, occasionally indulges in a luxury handbag from a high-end brand. However, the economic downfall, represented by a 10% salary reduction from her state-owned employer and a 50% depreciation in her family's real estate, has compelled her to change her shopping habits. Instead of buying new bags, Mandy, aged 28, now exclusively buys used ones.
"I'm economizing on significant expenses," explains Mandy while perusing luxury items at Beijing's newly opened second-hand store Super Zhuanzhuan. "The economy is undoubtedly in a downturn," she declares, explaining her transition to pre-loved items. "My family's wealth has dwindled drastically on account of the prolonged real estate crisis that has plagued China since 2021."
Economic Turmoil and its Repercussions
The threat of deflation in the world's second-largest economy is on the rise. Concurrently, consumer behavior is undergoing a seismic shift that could further deepen the price drop. Chinese authorities are concerned about the chilling implications of a general price decline, which could exact devastating consequences on companies.
Consumer prices have dipped slightly: in May, they dropped by 0.1% compared to the preceding year. However, fierce price wars are raging in numerous sectors, spanning from automobiles to e-commerce to coffee. A surplus of goods is colliding with sluggish demand from private households. "Unrelenting overcapacities will keep China in deflation this year and the next," predict Capital Economics analysts.
New enterprises are targeting thrifty consumers directly. Restaurants are offering entire breakfast menus for as little as 3 yuan (less than 0.40 euros). Supermarkets are inviting customers to flash sales, sometimes as frequent as four times a day. However, many economists are alarmed by this trend. Price wars could lead to the demise of numerous companies, causing rising unemployment and fueling deflation.
Affordable Luxury: The New Normal?
Since the onset of the COVID-19 pandemic, China's market for used luxury goods has evolved into a robust sector, boasting growth rates of over 20% per year, according to an industry report by Zhiyan Consulting. This expansion has inspired a surge in the number of items available for purchase. This surge is reflected in the depth of the discounts on offer.
Some ventures, such as Super Zhuanzhuan, offer items with discounts reaching up to 90% of the original price. In recent years, the industry standard for discounts hovered between 30 to 40%. Discounts above 70% are now the norm on major secondhand platforms like Xianyu, Feiyu, Ponhu, and Plum. "Given the current economic situation, we're seeing more luxury consumers turning to the secondhand market," notes Lisa Zhang of Daxue Consulting, a market research and strategy firm focusing on China. Sellers "are offering more discounts due to increased competition".
Economic Forecasts and Sector Prospects
At Super Zhuanzhuan, a green Christie handbag model from New York luxury brand Coach is on sale for 219 yuan (27 euros). The original owner paid 3260 yuan (397 euros) for it. A G-Cube necklace from Givenchy, originally priced at 2200 yuan, is now offered for 187 yuan.
"The number of sellers grows by about 20% each year, but the number of buyers remains relatively steady," states the founder of a luxury firm who desires anonymity. "The economy is the primary cause behind these trends." Although there are sufficient buyers in major cities like Shanghai and Beijing, that's not universally the case in other parts of China. "I anticipate that most of the businesses that have recently opened will close," states the anonymous entrepreneur.
University professor Riley Chang explores Super Zhuanzhuan, not to make a purchase, but to examine the potential resale value of her own collection. She's disappointed with the offers. "I've visited various large secondhand luxury stores in Beijing and Shanghai, and they all aim to keep prices as low as possible."
Sources: ntv.de, mau/rts
- Economy
- Consumer Behavior
- Luxury Goods Industry
- Deflation
Enlightening Insights:
Economic State:
- The Chinese middle class is experiencing a decline in spending power, resulting in reduced consumer spending, particularly in luxury goods.
- There is a shift in consumer behavior, with a preference for economizing and increased saving partly due to the economic uncertainty and the lingering effects of the pandemic.
Challenges:
- China's economy is grappling with sluggish consumer spending, significant downturns in the real estate sector, and the impact of trade tensions with the US.
Future Outlook:
- Despite projected GDP growth of around 4.7% in 2025, China's economy is expected to slow down further in 2026 to 4.3%, potentially affecting luxury spending.
- The luxury sector is likely to be impacted by the decline in middle-class spending power. However, some luxury brands may still find opportunities in niche markets or through strategic marketing efforts.
- Government policies aim to provide support to the economy, although their effectiveness in boosting luxury spending remains uncertain.
Key Influencing Factors:
- Ongoing trade tensions and tariffs could impact the luxury goods sector by affecting availability and pricing, further influencing consumer behavior.
- Deflationary pressures could lead to reduced luxury goods prices, potentially making them more accessible but also impacting profit margins.
- Changing consumer preferences could lead to a preference for more affordable or sustainable luxury options.
The Chinese authorities are closely monitoring the potential deflation in the economy, concerned about its impact on businesses and the rising unemployment it may cause. (Economy)
In response to the economic turmoil and sluggish consumer spending, some businesses are strategically targeting thrifty consumers with affordable luxury offerings. (Consumer Behavior, Luxury Goods Industry)
