By Annachiara Biondi and Thomas Hale, The Financial Times

Luxury goods are being discounted at rates as high as 50 per cent in China as middle-class shoppers rein in spending on big-ticket items and retailers grapple with overstocking.

The discounts in the country are being offered primarily by aspirational brands such as Versace and Burberry, as China’s once-voracious middle-class consumers become more frugal, according to industry insiders and experts.

Those brands had started selling their goods on local ecommerce platforms to capitalise on a boom in luxury spending during the coronavirus pandemic. But the ecommerce companies are now slashing prices to drive traffic in a slow economy.

Marc Jacobs was in early July offering a discount of more than 50 per cent on handbags, clothing and shoes on Tmall Luxury Pavilion, Alibaba’s premium ecommerce platform, while Bottega Veneta was offering a 24-month interest-free loan to purchase bags on the same site.

In the past, “everyone was a winner” in the luxury market in China, said Jonathan Siboni, founder of data intelligence platform Luxurynsight in Paris. “Now there is a polarisation between winners and losers.”

“The challenge is for the brands that are stuck in the middle and they are not cheap enough or not big enough to survive,” he said.

Average reductions on Versace and Burberry products in China across all distribution channels reached, and in some cases exceeded, 50 per cent in 2024, up from 30 and 40 per cent in 2023, respectively, according to Luxurynsight.

Burberry warned in its first-quarter update on Monday that annual profits would fall short of expectations, with comparable store sales in mainland China down 21 per cent. Chinese customer spending overseas “declined but held up better than mainland China”, said the company.

Top-tier labels such as Louis Vuitton, Hermès and Chanel, which have been more resilient across regions and target higher spenders, have maintained stronger control on distribution and avoided discounts, according to experts.

China’s domestic luxury market doubled in size between 2019 and 2021, according to consultancy Bain, as travel restrictions during the pandemic forced shoppers to purchase goods at home.

Companies stocked up on products to respond to growing demand and rushed to expand their reach in the market by joining local third-party ecommerce groups such as Tmall and JD.com.

By October 2020, a total of 200 luxury brands had joined Tmall. Luxury companies had also raised prices in China to recoup some of the losses in Europe and the US after countries imposed strict lockdowns.

“Chinese consumers couldn’t go anywhere, so they shopped domestically, no matter how much you charged,” said Veronica Wang, partner at consulting firm OC&C in Hong Kong.

The Chinese luxury bonanza took a turn in 2022, when the government imposed lockdowns in cities including Shanghai, Beijing and Guangzhou. After restrictions were eased at the end of the year, the market recovery was tempered by slowing economic growth, a property crisis, rising youth unemployment and low consumer confidence.

China’s economic momentum slowed in the second quarter, missing forecasts. Gross domestic product expanded 4.7 per cent year on year in the second quarter, official data showed on Monday.

Luxury brands and retailers have been left with too much inventory and have started discounting as international travel has resumed. A weak yen has added further pressure, making luxury products in Japan cheaper than in mainland China.

The ecommerce platforms have been particularly aggressive with pricing. “Platforms don’t own the brands and so they are purely focused on commercial performance. When the market is bad it is easy for them to just offer discounts,” said Wang. “It’s a battle between building long-term brand equity, versus achieving short-term commercial performance.”

Chinese ecommerce groups have traditionally held a series of sale festivals throughout the year. But as the economy slows, the sales have increased in frequency and competition for shoppers has intensified. Yoox Net-a-Porter, an ecommerce platform specialising in luxury discounting, pulled out of China in June.

Jelena Sokolova, an analyst at Morningstar in London, said there was a “risk of uncontrolled discounting when you sell to a wholesaler” in China.

“Online discounts in my view can be particularly harmful because they are not tied to location of specific store or outlet but visible and accessible to broader population,” she added.

Some luxury brands are also suffering higher return rates as shoppers take advantage of online promotions that require them to spend a specific sum to unlock a discount.

At Marc Jacobs, return and cancellation rates in China went from 30 per cent in 2023 to 40 per cent in 2024, while at Brunello Cucinelli they increased from 59 per cent to 69 per cent in the same period, according to Luxurynsight.

Brunello Cucinelli said: “The data reported are not representative of our business, overall dynamics, and have no statistical significance.”

Versace, Marc Jacobs, Burberry, Jil Sander and Bottega Veneta did not respond to a request for comment.

Discounts have surprised some luxury shoppers, and not necessarily in a good way. Pooky Lee, fashion curator and co-director of Shanghai-based creative agency Poptag, said the 40 to 60 per cent discounts at brands including Bottega Veneta and Jil Sander had changed his perception of their value.

“Many people purchase high-priced fashion and luxury brands with the expectation of preserving their value to a greater or lesser extent,” said Lee.

It is unclear whether discounts will help brands clear their stocks, as confidence among Chinese shoppers remains low. Research by Deloitte shows that the percentage of Chinese respondents saying they splurged on at least one item in the past month has declined from 59 per cent in 2022 to 42 per cent as of June 2024.

Federica Lovato, a partner at Bain in Milan, points to a widespread feeling of “luxury shame”, akin to what American and European shoppers were experiencing after the 2008 financial crisis.

“Customers don’t want to be seen with ostentatious luxury products and shopping bags. It’s becoming relevant in China and this leads to very low footfall and traffic in stores.”

For Lee, the discounts will influence his future purchasing decisions. He wants the items that will keep their value.

“Discounted brands can make people doubt the actual value of the products as well as the brands themselves in general,” he said.