news

Interface News Reporter | Chen Qirui

Interface News Editor | Xu Yue

The first fire in China's luxury goods market was ignited by Wuhan in August.

Many local high-end shopping malls launched promotional activities before the Chinese Valentine's Day. The biggest discount was offered by Wuhan International Plaza, where consumers could get a 100 yuan discount on purchases of luxury brands.10The rule of Wuhan Hang Lung Plaza is to get a 10,000 yuan return1500,Full510,000 Returns7500, and superimpose5Times the points.

This move is also considered to be the two shopping malls' response to WuhanSKPResponses to opening of business - Beijing in the pastSKPIt is famous for its mid-year and year-end celebration coupon subsidies. The difference is that the top luxury brands rarely participate.SKPpromotions to prevent them from damaging the scarcity value of the brand, but Wuhan International Plaza has unprecedentedly allowed consumers to "get a bargain" when buying luxury brands such as Louis Vuitton and SAINT LAURENT.

Strictly speaking, these top brands are not offering 20% ​​or 15% discounts as rumored on social media, but consumers can redeem shopping mall gift vouchers with shopping receipts or other vouchers after purchasing at full price. In theory, Wuhan International Plaza hopes that these gift vouchers will eventually be used in other brand stores, but the reality is that a large number of scalpers are waiting outside the store to exchange the gift money for cash.

As a result, although several leading luxury brands did not directly participate in the discounts, consumers actually purchased their products at prices lower than the official retail prices in the Chinese market.8moon4day,5On the 28th, a large number of consumers from Wuhan and other places flocked to Louis Vuitton in Wuhan International Plaza. Some netizens posted on social media that the waiting time in line was at least two hours, and most of the goods in the store were taken out and neatly placed on the counter.

Top luxury brands emphasize scarcity and their expensive value, and discount-related activities will damage their long-standing high-end image. Louis Vuitton's public relations team told Jiemian News that the brand was not informed of the relevant activities in advance and stopped them after discovering them.

Another industry insider revealed to Jiemian News thatSKPFor department stores that operate in a joint venture model, the mall and the brand often share half of the cost of promotional activities. However, for Wuhan International Plaza and Wuhan Plaza 66, which mostly have directly-operated stores, the cost of such coupon-rebate promotional activities often ends up being borne by the mall itself.

The industry insider also said that the revenue split between luxury brands and shopping malls is usually the higher of rent and commission. Simply put, if the brand's monthly sales performance exceeds the rent after the commission, the mall will collect the commission instead of rent. However, for the top luxury brands, they enjoy the treatment of a capped commission rate.

In this case, even if Louis Vuitton sells a large number of regular-priced products due to the mall promotion and significantly increases sales for the month, the amount it returns to the mall will not increase much. From this point of view, consumers benefit from the discount price, the brand's short-term image is damaged but it has achieved extremely high sales, and the shopping mall is ultimately at risk of a decline in profit margins.

Furthermore, this unsustainable promotion model that is like drinking poison to quench thirst is unlikely to bring more loyal users to the mall. Entry-level consumers who bought discounted products may not necessarily buy them again, while high-net-worth individuals who previously bought full-priced products will become dissatisfied. For Hong Kong-funded real estate developers such as Hang Lung that have long maintained a cool and high-end image, being involved in this discount war will also greatly erode their image.

Shopping malls will launch "price wars" even if they face disputes with luxury brands and damage to their own image. The core reason may be that the growth of the luxury shopping population cannot keep up with the growth in the number of high-end shopping malls, and the market is caught in "involution."

Jiemian News previously reported that although luxury consumption in China is still rising, it may take longer for a high-end shopping mall to truly pay off.10This is the case for projects backed by large developers and located in new first-tier cities. If they further penetrate into lower-tier markets, they are likely to face the risk of oversupply.

Previously released by Hang Lung2024The interim financial report shows that revenue increased year-on-year16.7%to61HK$1 billion, net profit fell56%to10.6HK$100 million. Overall rental income fell7%to48.9HK$1.3 billion, of which the rental income of the mainland China property portfolio decreased6%, among which the sales of tenants of Shenyang City Hall Hang Lung Plaza, Kunming Hang Lung Plaza and Wuhan Hang Lung Plaza declined20%、6%and15%。

Hang Lung was once one of the most active real estate developers in building high-end shopping malls in second-tier cities.2012The projects in Wuxi and Kunming were opened in2013Year and2019The first project to open its doors to customers during the pandemic was Plaza 66 in Wuhan, and the Hangzhou project also started construction during this period.

Other operators that chose to expand during the epidemic include:SKP, Sun Hung Kai Properties and Wuhan International Plaza's parent company, Wushang Group. WuhanSKPand HangzhouSKPConstruction started during the epidemic, ChengduSKPexist2022Opened in 2010; Sun Hung Kai’s NanjingIFCPreviously stagnant10However, the construction was accelerated during the epidemic, and Wushang Group decided toMallAs a high-end shopping mall brand output, Nanchang was chosen as the first stop.

As the luxury goods industry cools, these operators are beginning to face their own problems.SKPThere was a work stoppage problem before.IFCThe opening time was repeatedly postponed until2024It was officially put into operation at the beginning of the year. Previously, Louis Vuitton and Cartier had opened stores in Wushang, Nanchang.MallThe fence was put up at the beginning of the opening, but the renovation did not start until nearly a year later, while the fence of Louis Vuitton in Haikou MixC was directly removed.

What is happening now is that luxury brands and mall operators have overestimated the potential of second-tier cities.2024Year3In his last shareholder letter before stepping down in June, he said that cities such as Hangzhou, Chengdu, Nanjing and Wuhan could theoretically accommodate three to four luxury stores, but in reality could only support one or two stores, and the performance of the two stores was often quite different.

As luxury brands’ strategies become more conservative, removing fences and closing redundant stores are their measures to cope with the cold winter.A large number of brands from Shenyang City Hall Plaza 66 have moved to Shenyang MixC.

For mall operators, when customer traffic declines and top brands leave, the entire mall may go downhill. In order to cope with this situation, some malls choose high-end designer brands as a substitute and call them“Fashion Luxury”This type“Fashion Luxury”The brand has been in a period of expansion in the Chinese market in recent years and also needs stores in high-end shopping malls to shape its image.

The honeymoon period did not last long. For example, construction began during the pandemic and2023Kunming Jinjun Plaza, which opened in 2009, is the second largest and most profitable shopping mall in Kunming after Kunming Plaza 66 and Jinge Plaza.The third high-end shopping mall after the department store, butMarniandMaison MargielaBrands such as eBay and others began clearance sales less than a year after entering the market.

Another approach is to attract consumers through various marketing activities, and then use passenger flow data and sales data to protect luxury brands. Wuhan International Plaza and Wuhan Hang Lung Plaza do this. However, the trend of the luxury industry cooling down has not yet shown signs of ending, and how long this method of giving up profits in exchange for customers can last is also a question.

Another solution is to completely transform into mid-high-end, parent-child or social business, but there are not many successful cases, not to mention that there are usually many such shopping malls in second-tier cities. Real estate developers who are used to high-end business sometimes may not be able to compare with Longfor and Wanda, which are more familiar with the sinking market, in terms of resources and operational capabilities in the mass market.

The only thing that real estate developers can be sure of now is to suspend the development of new projects.2024The company issued a mid-year profit warning, and its last high-end shopping mall project in mainland China was2018ChangshaIFSAfter launching a series of projects in Kunming, Wuhan and Hangzhou in just a few years, Hang Lung has not yet announced any new development plans.