Luxury Brands Break Sacred ‘No Discounts’ Rule To Cope With China Slowdown

Hermès broke its golden rule of not offering sales by holding on to clear unsold stock last Tuesday. (Flickr/SimonQ錫濛譙)

Hermès broke its golden rule of not offering sales by holding one to clear unsold stock in China last Tuesday. (Flickr/SimonQ錫濛譙)

They are well-known rules of Hermès—no sales; no selling at shopping malls. But these rules went out the window when Hermès held a discount sale last Tuesday to clear unsold stock at the Hyatt Regency Hangzhou, according to Chinese media. China’s ongoing anti-corruption campaign has left luxury sales growth reeling, and other luxury brands look set to follow Hermès’ footsteps in offering discounts rather than let unsold stock gather dust in a warehouse.

Sales growth rates for many luxury brands have dried up following China’s ongoing anti-corruption campaign, as gifting and lavish entertainment are scrutinized. As a result, companies  are being forced to rethink their China business strategies. In addition to Hermès, Ferragamo, Boss, Armani, and Paul & Shark are also reported to be holding their own sales near their own outlets at department stores in mid-May.

“It has been rough for luxury goods this year,” an unnamed department store manager told MSN Luxury. “The accumulating unsold stock caused by plummeting sales is a cause of concern for the brands too.” The article mentioned that clothing and apparel form the bulk of unsold stock, and brands have great incentives to move them via sales since they cost tens of thousands of yuan and quickly go out of fashion. A recent article in Want China Times states that Hermès carried discounts of 20 to 50 percent.

However, recent shifts in consumer spending may mean that the discounts aren’t such a bad thing. An industry insider told MSN Luxury that over the last two years, luxury consumers have been increasingly looking out for deals. “In the past, we felt the need to distance full-priced stores from discounts and sale,” said the insider. “But these days, when given the opportunity, many of these customers who used to pay full prices will not turn down sales and discounts.”

 

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