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Jun
2015

Second hand luxury is no longer second rate

二手奢侈品2

Buying anything second hand in the public domain in China, has always had a stigma attached to it, especially if its ‘luxury’. There is the face of success associated with being seen buying new products, or having them delivered to your home or office; old things were perceived as a sign of being out of step with the times or just being less successful than others. The track record of the luxury sector in China is full of examples of individuals buying yet another luxury car, when they already have four and don’t really need one. Or people buying another property and leaving all the furniture from their current home behind and completely refitting it from top to bottom with new items. This attitude has become common practice.

A new purchase also had to come from a branded store to ensure that it was genuine; the fear of buying and then owning fake items was shameful. The trust, or lack of it from any source other than the original manufacturing brand has always been leveraged by those selling luxury here, but with the slowing of the economy and apparent consumer spending, are brands losing sales to other source’s of original product? Buying second hand has come of age in the past 12 months, and more stores have appeared on the high streets offering used, and some new and unused products to those who want to make their budgets stretch a little further, or those who cannot wait any longer for the full price item.

General overview

Earlier this year, Fortune Character magazine published some findings from its own research into the second hand market in China. They claimed to have surveyed more than 200 second-hand luxury stores in the tier one cities of Beijing, Shanghai and Guangzhou and over 570 luxury consumers asking whether they would either buy or sell through these channels.

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So when looking from a geographical perspective, what do we see? As the political capital, Beijing is likely to be the city with a greater number of people wanting to dispose of unwanted luxury items. No doubt many will have been gifts, and the multitude of second-hand stores will facilitate anonymous transactions, which are likely to be handled by a relative or friend on their behalf. Those buying second-hand may want to purchase an almost unused item for themselves or as a gift for a business associates whilst working to lower budgets than before. New government regulations have certainly stimulated the acceptance of second-hand sales and purchases in the countries first city.

Shanghai by contrast is a city of individuals and more remote from political influences, many individuals are highly aspirational but also very price conscious. The people of the city have always been the most demanding in terms of discounts, and provided owning second-hand is socially acceptable, they will see this as an opportunity to buy a bargain. However, generally the Shanghainese see themselves as trendsetters in China, and are likely to prefer to own the latest design, or to purchase overseas given that choice, hence the lower acceptance to purchase a used product as shown in the graph.

Guangzhou being relatively close to Hong Kong means that its consumers consider the price they can pay over the boarder for the most recent product is the same as that of second hand previous season items, hence the low acceptance of second-hand items compared to the other cities. They are also less likely to see themselves as trendsetters like the people of Shanghai, and feel the need to trade in or up luxury items.

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Consumer descriptions

With the increase in popularity of second-hand stores, who are the buyers, the sellers, and what are their motivations?

HNWI’s: These people are typically spontaneous buyers or followers of their peers. Over the past 12 months they have learned more about luxury by slowing the buying frequency and asking questions.

Why buy second hand luxury items?

  • As a gift for others i.e. better value for money for original items
  • Why sell to a second hand store?
  • Disposal of a gift without any real record of their ownership
  • Less stigma in earning cash back for items that are now no longer wanted
  • There are more channels to sell to and the process is simpler
  • Older purchases are now too common and less desirable
  • As a private business owner for whom incomes have slowed, cash flow may be an issue and quick money is required
  • White collar workers and the affluent: They have the luxury bug, but are very conscious of spending less and saving more for their unknown future.

Why buy second hand luxury items?

  • They can still have the product they want for less money
  • They can possibly get a real bargain
  • There is a wide enough choice to meet a range of budgets
  • They don’t have to wait as long as they would for new original items
  • It is now acceptable in their circle to buy nearly new luxury items

Why sell second hand luxury items?

  • To put needed cash back in their pockets without their friends knowing
  • To trade up for relatively less money
  • To rejuvenate their lifestyle with something different within a limited budget

According to the Fortune Character survey the distribution by age of those willing to buy or sell second hand items is shown below.

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Those under 30 are almost twice as likely to sell as they are to buy used items which is likely to be driven by their desire to free up more cash, and to sell off items that are now no longer in style. Buying second hand will be more socially acceptable to those in this age group.

The 31-40 age group will have more disposable income than their younger counterparts and are therefore likely to be less driven to sell their existing luxury items to free up cash, although they may still do so in order to buy products of the latest design. They too, may find it socially acceptable to own a second hand item.

It is likely that those who are 41 to 50 years old are relatively wealthier than the other groups and are therefore less likely to either buy or sell second hand. They are also likely to find it unacceptable in terms of face to be seen doing so. And the oldest group are individuals who grew up with little money, and have the greatest fear of what is round the corner. These people are likely to sell luxury items and either put the cash in the bank ‘just in case’, or to invest it in gold or diamonds which are seen as sensible investment vehicles.

Category activities

The principal luxury products being sold through second hand stores are luxury watches, bags and cars.

Watches

Often received as a gift, the owner now needs to dispose of into the market. For some second hand watch buyers they want an item for status at a lower than regular retail price, or they as a small business owner want to give a quality gift of perceived high value to an associate but at the lowest price possible.

Bags

Sold because they are not current designs, they are now too commonplace or are covered with brand logo’s that are not acceptable to a more mature consumer base. For the newer and more aspirational buyer, ownership becomes cheaper, or the brand that might otherwise be too expensive, now falls into budget.

Cars

For wealthy second generation, selling a car to a friend or a dealer means that you can have a new ‘toy’, as the money isn’t the issue although getting a good deal is. For many small business owners who might have had multiple luxury cars, recent economic conditions mean that the cash tied up in a luxury car can be released and recycled into the business.

Facts and figures

So when compared to the original price, how do second hand items compare? We took a sample in the market and in the table on the next page can be seen how much money can be saved on cars, watches and bags.

The price difference between a new item and those sold in second hand stores or car dealerships is typically 20 to 30%, and there are certainly some bargains when it comes to cars. The second hand car market is very new in China, and therefore benchmark values are not yet determined. It is also probable that some of the cars being sold were originally purchased by small business owners who now need to free up additional cash to plough back into their businesses, hence what are significant savings on vehicles with very low mileages. For these people, applying for and being awarded a bank loan may take too long or be too complicated, and quick money is required.

Classic LV bags are showing signs of being seen as of lower value than those of Hermes or Prada, and are likely to be sold because of the trend to carry fewer logos and not to release cash by their current owners. The sale of a Patek Philippe watch that would be considered as a good investment brand, is likely to be a business owner wanting to access cash quickly.

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The future market

The second hand luxury market in China is expanding, in part due to the government regulations related to possession of gifts by officials, and part due to the slowing economy and a feeling by many that purse strings should be tightened. The loss of the sellers becomes the gain of the buyers who now find some luxury products that might have otherwise been out of their budget, within their reach.

In the case of bags, a general market trend in the tier one cities towards fewer logo’s and more discrete ownership has driven many to sell off some of their possessions to bring in cash that can be used to purchase the most recent designs. The buyers may be white-collar workers who have kept more money in reserve over the past year rather than spending it, but who have also been bitten by the luxury bug and need to buy products. Good second hand is just what they need, and its now acceptable to own it.


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