As luxury resale catches on in China, investment buying is on the rise

To receive the Vogue Business newsletter, sign up here. China’s customers are paying more and more attention to the long-term investment value of luxury goods when they make purchases, signalling a new brand hierarchy in the region. On social media platforms, including Xiaohongshu (Little Red Book), customers are searching for products with terms such as “value preservation”, with bloggers ranking the long-term value of various brands and styles based on buying experience. They guide shoppers to the best brands and product styles to buy as investment pieces. Luxury has long been considered an investment purchase, with Chanel’s classic Flap bags and Hermès Birkins among the pieces known for increasing in value long after purchase. In China, the rise of secondhand luxury platforms is changing how customers, particularly older luxury customers, shop. When investment is the top priority, the perception of quality, performance and craftsmanship changes as well, carrying implications for brands looking to gain back sales, particularly now, as lockdowns in Shanghai and Beijing lift and “revenge buying” is expected to commence. What will customers invest in? Valuing luxury Li Ge used to run a Japanese secondhand luxury business and is the founder of Tokyo1stop, a platform that connects local merchants in Japan with Chinese consumers, and also helps Chinese brands navigate business overseas. Merchants offer high-priced luxuries such as watches, jewellery and bags, and Chinese consumers are the target group. The categories with the best long-term value are top performers, says Li Ge: primarily watches and jewellery, with only several styles of handbags considered good long-term investments. Li Ge says buying luxury goods is a kind of social recognition, and the factors that affect long-term value are determined by three points: brand recognition, product price and brand marketing ability. According to the Luxury Brand Affinity Rankings for 2021 published by Consultancy Agility, Chanel, Dior and Hermès ranked as the top three favourite brands among high-spending Chinese customers, while Louis Vuitton, Rolex and Cartier also ranked in the top 10. According to Thomas Piachaud, head of strategy at the Shanghai-based consultancy Re-hub, there is a cultural factor at play when it comes to Chinese consumers’ perception of luxury. “The Chinese have always been more savvy about investments,” Piachaud says. According to Re-hub's research, many luxury handbags with a certain history are sold at a much higher price in the secondary market than the original price. “As luxury consumption becomes more and more popular, consequent consumer attitudes such as luxury collecting and investing are also on the rise.” In China, the growing secondhand luxury market has provided savvy and pragmatic luxury consumers with a platform for faster returns on their investments. Last year, Brand Off, Brandear, and Reclo, three Japanese secondhand luxury retailers, all launched in the Chinese market, bringing more secondhand goods to the country. According to the 2021 China Secondhand Luxury Industry Overview released by Chinese research institute and database LeadLeo, classic items from top-tier luxury brands are favoured by most consumers because of their investment value; the report shows that 73 per cent of secondhand luxury consumers will give priority to buying prestigious luxury brands, and in addition, 62 per cent of consumers will choose classic items. According to Hongbulin (also known as Plum) a luxury resale platform, firsthand luxury consumers will buy on secondhand luxury goods platforms, and will also sell them on consignment and recycle items. Additionally, the platform found that young people have begun to consciously buy and sell second-hand luxury goods as “new financial products”. The five luxury items that are regarded as the most profitable investments, in Hongbulin’s research, are the Chanel gold double C vintage necklace, the Hermès orange Birkin bag, the Hermès elephant grey lychee pattern Kelly bag, the Vacheron Constantin gold vintage watch and the Hermès black cowhide Kelly handbag. Each of these items sees at least RMB 10,000 in profit on resell (around $1,500), with some sellers making as much as RMB 37,000 (around $5,500) on the Chanel double-C alone. The best investment brands Li Shuo, who runs a secondhand luxury shop, points out that while secondhand prices fluctuate, three brands are consistent in long-term value: Hermès, Louis Vuitton and Chanel. What makes these brands worth preserving? “Price,” Shuo says. The more an item is sold for at market value, the more it can be resold for later. Chanel, Louis Vuitton and Hermès are all known for regular price increases as well. Taking classic Chanel handbags as an example, the price of the classic Maxi Flap increased by 15 per cent last year, and the small Classic Flap saw three price increases last year, and now sells for as much as $8,500. Hermès, Louis Vuitton and Chanel were ranked the top three luxury brands by value, according to resale platform Rebag, who attributed strict inventory management, flexible pricing strategy and rich brand heritage for the preference. The report pointed out that the backstage manipulator for LV and Chanel handbags value preservation is frequent price increases. Shifting values post-lockdown According to a report by Yaok Institute, the pandemic and subsequent restrictions have had a significant impact on the consumption structure of China's luxury goods. Some younger consumers are more willing to save money and forego luxury shopping. But 75 per cent of high-net-worth customers said in the second half of the year, they will increase spending. This research defines consumers with a net asset of more than RMB 10 million as high-net-worth consumers, totalling 4.7 million people, who made up about 80 per cent of China's luxury consumption in the past two years. Because they are older and more experienced, they are also the ones who love limited-edition and classic styles of international heritage brands most. Li Ge says that for the younger generations, their attention is being distracted by fashionable brands. “They no longer need luxury to express their individuality; some even think it is old-fashioned.” According to the report “The New Faces of Chinese Luxury Shoppers" by consulting firm Oliver Wyman in October 2021, the majority of Gen Z consumers prefer trendy seasonal items and niche brands rather than classic styles, and care less about value preservation. However, older consumers still want classic timeless pieces that hold value. Luxury consumption in the post-lockdown era is therefore likely to see older, high-net-worth consumers making the biggest contribution to luxury consumption and becoming the main force behind investment luxury consumption. Thomas Piachaud from Re-hub says that luxury brands should continue to supply Chinese customers with premium and limited-edition products that count as investment pieces and retain them through close customer relationship management and high quality marketing, rather than spending too much time on mass advertising oriented to entry-level consumers as before. He also mentioned that with the rise of resale in China, brands that participate directly in secondhand luxury sales will better understand the consumers' mindsets. After all, when more and more Chinese consumers “buy bags in order to sell the bags”, the social meaning of luxury shopping will evolve. Comments, questions or feedback? Email us at feedback@voguebusiness.com. 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