China’s Amateur Investors Pin Hopes On Luxury Price Hikes

    Many Chinese consumers think their Gucci bag is a solid investment, but experts warn that luxury retail price increases might not translate into big payoffs for secondhand goods.
    Experts warn Chinese consumers from relying on the retail price hikes of luxury goods as investments. (Gucci)
    Shuan SimAuthor
      Published   in Retail

    Experts warn Chinese consumers from relying on the retail price hikes of luxury goods as investments. (Gucci)

    Despite a slowdown in sales, prices of luxury goods in China kept going up year on year. According to a recent article by Chinese media, more people are taking advantage of these price hikes by buying luxury goods as a form of investment. However, experts interviewed believe that the yield from such reliance on luxury goods as investments is unwise, especially as their resale value plummets.

    Chinese news reports that Prada reported a 0.3 percent profit growth last year, and Gucci posted first-quarter sales growth of 0.3 percent this year—both performances a far cry from the astronomical double digit growths they experienced in 2012. However, that has not deterred their prices from rising, and an online commenter said that people see such price appreciation as a sign that “investing in luxury goods can only be a lossless venture.” This ties in with Chinese investors’ preference of hard assets, such as jewelry and art, over China’s volatile stock market.

    While retail prices of these luxury goods are rising, their dismal resale value makes luxury goods a far cry from being a “lossless” investment. “I bought a classic Dior bag in 2012 for which costs 25,000 yuan ($4,000) in mainland China,” said luxury enthusiast Ms. Lee. “The following year, it was retailing for 28,000 yuan ($4,470). After some research, I found out that retail prices are not used in the buyback of secondhand luxury goods in China.” She then said that her bag was appraised to be worth only 13,000-15,000 yuan ($2,080-2,400), and felt like the wool had been pulled over her eyes when she made the purchase.

    According to industry insiders, most people usually only get back 50 percent of what they paid for their luxury item. Fortune Character Institute Director Zhou Ting told the media that the more prices of luxury goods increase, the more people see luxury items as investments. A luxury report by Fortune Character Institute says that jewelry, leather goods, and watches are seen as the most viable investment options with the most value retention.

    Furthermore, the increased prices of luxury create a risky bubble of desirability, where people see products as being more in demand than they actually are. A luxury store manager said that without careful analysis of what the resale market is like, an investor can end up with an asset that nobody wants.

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