Merger shakes up China’s pre-owned luxury market

After years of rollercoaster growth and decline, mainland China’s secondhand luxury market is undergoing a transformation, driven by a significant merger and rising demand from value-conscious younger consumers. On September 23, Zhuanzhuan, a platform primarily focused on pre-owned electronics, announced its acquisition of Hongbulin (Plum), a seven-year-old consumer-to-consumer (C2C) secondhand fashion and luxury e-commerce platform. This merger signals a potential shift in China’s secondhand luxury ecosystem, positioning Hongbulin to compete more effectively with international players such as Vestiaire Collective and The RealReal, both of which have struggled to gain traction in mainland China. Zhuanzhuan’s acquisition of Hongbulin follows a $100 million investment in the platform in 2022, one of the largest deals in China’s secondhand luxury market to date. Described by Zhuanzhuan COO Hu Weikun as an “extension” of that investment, this merger integrates Hongbulin’s luxury resale expertise with Zhuanzhuan’s broader platform. While Hongbulin will retain its brand and app, its authentication processes will be integrated into Zhuanzhuan’s “official verification” system, potentially enhancing buyer trust – a crucial factor for success in this growing market. This merger forms part of Zhuanzhuan’s strategy to diversify beyond electronics and strengthen its position in the highly lucrative secondhand luxury sector, valued at over 3 trillion RMB ($420 billion) by the end of 2024. By consolidating authentication services and leveraging Hongbulin’s fashion expertise, Zhuanzhuan aims to better compete in a fragmented market where no single player currently dominates. Nebulous secondhand luxury market While Alibaba-owned Idle Fish and Zhuanzhuan dominate the broader secondhand e-commerce market in mainland China – with an estimated combined 91% market share – the pre-owned luxury and apparel market remains highly fragmented, populated by a wide range of platforms, among them Secoo, Feiyu, and Ponhu. China’s secondhand luxury market has made it challenging for international platforms to gain a foothold. While Vestiaire Collective has thrived in markets like Hong Kong – where demand has surged 208% over the past three years – it has struggled in mainland China. This disparity could stem from differences in consumer motivations: while mainland Chinese consumers often cite sustainability as a reason for secondhand purchases, their actual behavior reveals that affordability is a stronger driving force. Mainland consumers prefer high-end brands in near-perfect condition, which has made it difficult for platforms like Vestiaire Collective and The RealReal, which often offer a mix of vintage and well-worn items, to meet local expectations. This dynamic has driven domestic platforms into a race to the bottom on pricing, further squeezing profit margins for larger global players. For international platforms to succeed in mainland China, they must adapt to these specific consumer preferences – particularly the emphasis on value and product condition. The Zhuanzhuan-Hongbulin merger strengthens domestic players, who are better equipped to cater to these local demands. Post-merger opportunities, challenges With China’s secondhand luxury market expected to grow to 217 billion RMB ($30 billion) by 2025 from 58 billion RMB ($8 billion) in 2020, Zhuanzhuan and Hongbulin are well-positioned to capture more market share. Their merger combines the strengths of a specialized luxury resale platform and a tech company experienced in logistics and e-commerce. By consolidating their authentication processes and leveraging core strengths, they could gain a competitive edge in a market where trust and product quality are crucial. However, recent data from The RealReal show a softening demand for high-end luxury brands such as Chanel, Gucci, and Louis Vuitton at resale, while more affordable brands like Miu Miu and Bottega Veneta are gaining popularity. This shift toward value-seeking behavior reflects broader trends in China’s luxury market, where rising inflation and economic uncertainty are prompting middle-class consumers to rethink their discretionary spending. Broader economic challenges, including rising unemployment, a struggling real estate market, and inflationary pressures, could dampen demand for high-end secondhand goods. Although the secondhand luxury market offers value-conscious consumers access to premium brands at lower prices, market sentiment remains cautious. The critical question is whether younger Chinese consumers will continue to see secondhand luxury as a smart financial choice or whether rising financial pressures will cause them to pull back. Pivotal moment Zhuanzhuan’s acquisition of Hongbulin could reshape the secondhand luxury market in China, offering a domestic competitor to international platforms that have struggled to establish themselves. As younger consumers continue to seek value in the luxury space, the combined strengths of Zhuanzhuan and Hongbulin may help them stand out by offering high-quality products, stringent authentication, and competitive pricing. However, the success of this merger will depend on their ability to navigate a volatile economic environment and meet the evolving needs of China’s value-conscious luxury shoppers. By blending their respective expertise, Zhuanzhuan and Hongbulin have the potential to reshape the fragmented secondhand luxury market in China. Still, as the country’s economic challenges persist, their ability to balance value, trust, and quality will determine whether they can maintain their competitive edge in an unpredictable market.

Merger shakes up China’s pre-owned luxury market

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Published October 12, 2024

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Merger shakes up China’s pre-owned luxury market