Luxury brands have a new headache in China: Stingy shoppers are returning their goods, erasing up to 75% of their sales value
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Luxury brands in China are facing a significant challenge as stingy shoppers are returning their goods, resulting in up to 75% of their sales value being erased. This trend of high returns, well above the global luxury industry average of 20% to 30%, has persisted since China exited Covid Zero more than a year ago. The majority of shoppers on platforms like Tmall are middle class, who are now seeking discounts or shifting away from pricier purchases due to the country's ongoing economic slowdown. The trend has worsened in the first quarter of this year, with return and cancellation rates for luxury brands on Tmall increasing. Shoppers are increasingly requesting returns and cancellations before their products are even shipped, taking advantage of promotional campaigns that offer discounts. This has artificially inflated initial sales figures. The weakening consumer sentiment has already affected some global luxury brands, with slower sales growth reported by LVMH and a decline in China sales for Kering's Gucci. However, luxury brands at the highest end, such as Hermes, Chanel, and Dior, have limited their reliance on e-commerce channels and sales campaigns, focusing on cultivating wealthier customers. Online orders accounted for 42% of China's total high-end market revenue last year. E-commerce platforms in China have made returns and refunds easier, allowing customers to return purchases with no reason given within seven days. Despite the challenges, premium brands cannot afford to walk away from China's e-commerce platforms and have been investing in concierge services and private sales to build long-term relationships with wealthy customers. Bain & Co. predicts that China's luxury sales will slow to the mid-single-digits this year, primarily driven by high-net-worth individuals. Luxury brands need to refine their strategies for the Chinese market and focus on very important customers.

#LuxuryBrands #China #Shoppers #SalesReturns #EcommercePlatforms

https://fortune.com/asia/2024/04/17/luxury-brands-new-headache-china-stingy-shoppers-returning-their-goods-75-sales-volume/