The Secret of Luxury Slowdowns
The Answers Senior Management Across Industries Seek from the Chinese Market
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I was driving and burst into tears with ironic laughing while seeing the 2 sentences floating up from WeChat:
“We can’t buy in products from long tail brands, unless price is too low to be logical”;
“There is nothing impossible about low price on big brands — you have to believe in the power of 卷 (Juan3) from Chinese people” .
My friend, a high-ranking official at a top Chinese platform, bluntly stated that brands have no price floor, regardless of their magnitude. This revelation, both ironic and unsettling, made me realise that luxury slowdowns are heavily linked to the Chinese market’s deceleration. Given China’s crucial role in the luxury sector, this realisation is deeply concerning.
卷 (Juan3) stands as the linchpin directly linking the elusive secret of luxury slowdowns, signalling an unhealthy degree of price competition that can precipitate market stagnation.
I’m not here to criticise the huge market who plays even heavier role than it seems. Rather, I aim to unveil the hidden chamber of this economic phenomenon to discover the remedy.
After I was dissecting the intricacies of China’s ecommerce landscape in the Linkedin article a few years ago, which was reposted by many industry professionals like YOOX NET-A-PORTER group and even Alibaba Group at the time, I’ve ultimately made the decision to pen this article for the “Secret of Luxury Slowdowns” after reading numerous pieces on this topic from The Business of Fashion.
A WORD TO START WITH
Juan3 originally means: roll, curl, curled up, sweep up, and involve.
ChatGPT says, surprisingly: The term “卷” in Chinese colloquial language typically refers to the act of consumers enthusiastically buying or purchasing products in large quantities, often driven by discounts, promotions, or other incentives. It can be translated into English as “snap up,” “hoard,” or “bulk buy.”
The Chinese local economist explains: “Juan3” is an internet slang term that originally referred to a cultural phenomenon where a certain pattern reaches a final form, unable to stabilise or transform into a new form, but instead continuously becomes more complex internally. It now refers more to the phenomenon where ones in the same field compete by exerting more effort to vie for limited resources, resulting in a decrease in the “reward-to-effort ratio”.
It can be seen as the “inflation” of effort.
In 2019, McKinsey projected that China’s portion of the global luxury market would expand to 41% by 2025.
In 2024, according to Statista’s data for 2024, the Luxury Goods market is anticipated to yield a revenue of US$368.90 billion. Specifically, the Luxury Goods market in China, including Hong Kong, is estimated to reach US$70.82 billion, accounting for approximately 20% of the global total.
Setting aside the implications of the figures, one trend emerges: the Chinese market may not have met expectations from 2023 to 2024, as this period would likely reveal the slowdowns, after the pandemic took over the whole long period of “effort inflation (Juan3)”.
Now, let’s take a step back to 2021 and 2022, as indicated by readily available Google search results mainly from Statista:
* Beauty: US$534B in 2022 (China takes 17,3%).
* Fashion: US$1.7~2,5 trillion in 2021 (China takes 25%)
* eCommerce: US$14.3 trillion in 2021 (China takes 42,4%)
* Influencer Marketing: US$30.4B in 2022 (China takes 46%)
I would argue that for beauty and fashion, the actual market share for the Chinese-speaking market in 2021 and 2022 might even be double the figures stated above for China alone. Consider, for instance, the Singles’ Day shopping festival in 2023, which generated sales of USD$157.97 billion, according to Bain.
However, the rationale behind this assertion will become clearer as we delve into the secret chambers I’m about to reveal. Then the “slowdowns” will make significant sense after the adventure.
THE ADVENTURES TO THE SECRET CHAMBERS
Let me take you on an adventure through three secret chambers, so you can prepare your brave heart to discover a strong and resilient path together with me.
I refer to them as secret chambers because you’ll find yourself intrigued, fascinated, and even hypnotised. Yet, at the same time, you’ll feel puzzled, confused, and somewhat nervous, uncertain if you possess enough knowledge to navigate them successfully.
1. Chamber of Super Products
What is super product?
“Things that everybody wants but nobody can find…”
AI Generated Image by Tingting Zhang’s Description Prompts:
Gucci belts, FERRAGAMO belts, Alexander McQueen sneakers, Burberry iconic plaid shirts, Coach and TORY BURCH vintage pattern bags, Groupe Clarins Double Serum, Estée Lauder Advanced night repair …
Super Products in China are those items that burning hot but practically flying off the shelves, while huge demands in the market, extra low price, and close to no margin for distributors.
Welcome to the Chamber of Super Products, also known as the Chamber of Cashflow Bombs. Seasoned Chinese business proposals often emphasise the success stories and importance of exceptional ‘super products’ in elevating a brand to prestigious ‘well-known’ status in China.
Weiya’s sale of 15,000 bottles of a “super product” positioned perfume alongside Kim Kardashian in a mere 60 seconds during their 2020 livestream;
Jiaqi Li’s remarkable feat of selling 15,000 lipsticks within just 5 minutes in May 2023, translating to a retail deal worth nearly half a million USD within that brief timeframe. Rumour has it that Jiaqi Li raked in a staggering revenue of nearly 40 billion USD during the 11.11 festival in 2023 alone. The jaw-dropping sales figures, allegedly achieved by one person in just 3 to 4 days, raise significant contradiction as they represent a substantial portion of the total estimated annual luxury revenue from China and Hong Kong reported by Statista. Maybe those lipsticks are not luxury, or maybe there are anecdotes behind the figures.
Jiaqi Li’s liptsticks livestreaming
Sales of super products inject adrenaline into every role within the supply chain. Consider a single deal yielding profits exceeding half a million euros. Would anyone decline easily if an importer/wholesaler pledged to purchase 100,000 units of one SKU, such as a face cream nicknamed “Hermes of cream,” a tonique water dubbed “pink water,” or an eye cream named “wrinkle iron,” all negotiated at hugely discounted price for such a large quantity?
Let’s illustrate this with a practical example:
Imagine a super product with a retail price of €100 in Europe and €110 in China. Through a special deal, it’s offered at €30 per piece instead of the normal wholesale price of €60, with a bulk order of 100,000 pieces. This amounts to €3 million in revenue.
With such a significant deal, a cashflow surge occurs. The €3 million deal is swiftly closed and recorded in the manufacturer’s financial statements to showcase to shareholders.
Following this, a flurry of content marketing, promotions, and brand glamour might indeed take place to flood social media platforms, leveraging the established reputations of the products and brands.
Subsequently, the huge deal player allocates €5 per piece for logistics and marketing, then sells each unit to B2B businesses for €50. This results in a gross margin of €15 per piece, equating to €1.5 million in total — a substantial profit margin of 50%.
Price calculation overview
Scene 1: Confusion
In the aftermath, many other distributors find themselves stuck with unsold inventory, having purchased the products at, let’s say, €60. Meanwhile, the major ecommerce platforms procure the same items from the huge deal player at €50 or €55, then retail them to consumers for €70, or even less.
This leaves those distributors questioning: “How can I justify purchasing products at the same price the platform offers to consumers?”
Scene 2: Price Dumping
Once the huge deal player completed the batch of 100,000 pieces, the goods held by other resellers may have already expired, or they may have slashed prices even further to avoid expiration. Consequently, the product ends up being sold at perhaps half the retail price, around 50 euros, instead of the intended 100 euros, which is even lower than the platform purchasing price. The worse, the platform begins to exert pressure on the wholesalers once again, leading to further escalation. This situation can be pictured into a leaf curling up as the pressure on its edges increases — a typical scenario of 卷 (Juan3).
Scene 3: Backfire in home market
Then, the prolonged retention of retail prices in China eventually influences back the European home market, causing retail prices everywhere to decrease in order to compete with the lower prices in distant markets.
As a result, distributors selling at dumping prices may opt to sell back to such as Europe or America, especially since those markets are not as sensitive to expiration dates. It’s worth noting that Chinese platforms typically request products with no less than two-thirds of their shelf life remaining.
Scene 4: Unofficial Manufacturing
When certain ecommerce platforms announce sales figures on certain brands, noticeable even to the brands themselves, that exceed the quantity actually manufactured, one can imagine the total profit generated from the demand has spurred unofficial manufacturing.
Scene 5: Force Out the Market
That certain product, or even the entire brand (if it’s not sufficiently large), suddenly becomes extinct because the price has dropped so low that no resellers can manage it anymore, as consumers have become accustomed to only purchasing at the lowest possible price.
Scene 6: Consumer Seek Replacement after Disappointment
The brand discontinues the product before its price plummets, avoiding damage to the brand’s reputation. The whole market keep searching the product all over the world; and counterfeiting pumped in and engaged majority of the market share on that sku; after too much disappointment, consumers seek alternatives and switch to a total different brand…
The presence of large-scale fund operations in China, backed by extensive supply chain financing, increases market sensitivity and volatility due to rapid returns and a lack of sustainable management. I consistently stress the importance of calculating benefits and margins for all supply chain stakeholders, regulating minimum selling prices, and balancing product lines. While selling in large volumes may be tempting, it carries huge risks without established terms and tactics. Many brands face cash flow challenges, but proactive measures can mitigate risks, including robust contracts and strategic initiatives aligned with long-term goals. Directly converting marketing efforts into sales across various products would be the ultimate goal.
2. Chamber of Omni-channels
Omni-channel is a fascinating term coined to describe any unconventional sales channels. Eight years ago, I published an article discussing the differences in e-commerce between China and the West. This article introduced omni-channels such as mobile commerce and community commerce then. It garnered a huge number of views and was reposted even multiple times by the YNAP group.
AI Generated Image by Tingting Zhang’s Description Prompts:
This chamber of Omni-channels has way brighter colour themes — I truly advocate for omni-channels to dismantle the barriers and defences of global shopping borders with innovative management approaches.
The born of ecommerce signifies the dawn of a new era in global distribution, potentially should have been led to a borderless sales phenomenon long time ago. So the term of Parallel Trading (the distribution of goods into markets without official authorisation) shouldn’t have been existed till now.
However, parallel trading has become a prevailing narrative among brands and manufacturers for 3 main reasons:
1. The root causes of “parallel trading” are unlikely to extinct: disparities in product collections, pricing, and distribution quantities in that specific market, coupled with the prevailing belief in the authenticity of products from their country of origin. These 4 factors drive additional demand in markets where consumer behaviour gravitates towards acquiring the same sought-after products.
2. Brands may have come to accept these disparities as inherent or unavoidable.
3. Some specific markets like China exhibit a persistent consumer behaviour where individuals aspire to possess the same products as others, as a means of demonstrating their affiliation with popular trends.
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In physics, movement is often driven by pressure differentials. When a market experiences greater demand for certain products compared to others, goods naturally flow from areas of lower demand to those of higher demand. This vividly illustrates how Chinese demand propels a global sourcing for wanted products.
This concept initially embodies the essence of omni-channel, I believe.
Over time, omni-channel has evolved into a spectrum of healthier phenomena, including mobile commerce, influencer commerce, social commerce, community commerce, and O2O commerce, among others. Omni-channel, in essence, diversifies sales formats for better product integration into the market. However, the greater the diversity of omni-channels, the more obscure indirect sales to parallel markets become.
While it may appear that most sales occur within Europe, America, or other continents, a significant portion may actually be serving secondary markets like China. This is why I suggested that when considering all the figures and numbers, the sales percentage in China might actually have doubled. If a vicious cycle of poor pricing strategies leads to repercussions in the home market, such as Europe or America, why not prevent this from the outset?
Naturally, language, currency, tax, and logistical barriers serve as regulatory mechanisms to keep goods relatively contained within their regions already. So, why not embrace the concept of the “omni-channels”?
Instead of viewing it as separate and parallel, we can restructure it with an open strategic model attached to innovative operational methods. This would make communication and sales more straightforward and controllable, making omni-channels more transparent and trackable. This will, instead, increase financials hugely, significantly and substantially diminish counterfeiting, if its managed in proper tactic.
3. Chamber of Unilateral Terms
We’ve traversed the realm of a capricious buying market and disrupted pathways to the selling market. Now, let’s embark on an adventure into the intricate and tantalising realm of the end channel on wholesale.
AI Generated Image by Tingting Zhang’s Description Prompts:
Unilateral terms pose a predicament for major players in especially China. Why the dilemma? Because actions deemed gospel by Chinese giants, especially the following five terms, are deemed nearly impossible for Western brands to comply with:
1. Platforms demand super-low prices and enormous quantities for super products; failing these criteria, items are relegated to supplier-invested flagship or pop-up stores. However, successful sales may propel those conventional brewed products into the dynamic landscape of omni-channels, propelling them into the unwilling turbulent scene if any uncareful action was taken.
2. Platforms fulfills payment to suppliers until goods arrive cross-continent with a process spanning 15 to 90 days, which creates the major cashflow risk often inadequately covered by insurance. Moreover, deductions for defects or packaging issues are commonplace.
3. Unconditional returns are mandated, placing the burden on suppliers to retrieve unsold goods at their expense including extra logistics and tax.
4. Adherence to Chinese operational systems is mandatory, requiring the navigation of intricate, Chinese logic-based systems predominantly in the Chinese language for every operational aspect.
5. Content support becomes imperative, as suppliers are compelled to create product pages despite the prevalence of image-centric Chinese ecommerce platforms. And the relevance of global conventional SEO diminishes significantly, demanding substantial investments in platform-specific Search Engine Advertising (SEA) models for each platform.
These five mountains lead to 3 critical facts:
A. Western brands or distributors often avoid direct engagement with platforms due to lack of coverage by Western insurance for trade with China. Unconditional return and payment terms further strain cash flow and profitability.
B. Counterfeits and unofficial productions are on the rise, favored by major platforms for their low prices and bulk availability. These goods, often sourced without brand permission, harm profitability and reputation.
C. The widespread adoption of the ‘super product’ mindset fuels chaotic sales planning, lower design standards, and potential overproduction, contributing to luxury market slowdowns driven by price, quantity, and quality battles.
In response to these pressing issues, I have spoken with multiple stakeholders.
One trader revealed that they sometimes forgo adding profit to the price due to the prevailing ‘market price’ dynamics for these super products. To sustain operations and manage cash flow in financial reports, they require buyers (outside of the platform) to pay upfront, with goods delivered EXTRA 1 or 2 months later to recoup the interest on the funds. While this practice may seem perplexing or incredulous, it unfortunately reflects the bizarre realities of the market.
Additionally, I spoke with some senior managerial roles from top 3 platforms in China to understand why they are inclined to sell or buy at such low prices, while without a downpayment. Despite their awareness of the challenges associated with sourcing reliable resources, they emphasised that this approach is necessitated by market dynamics.
Below is a summary to unveil an in-depth dissecting:
Fear of responsibility: Regarding payment, the reluctance of major platforms to provide down payments stems from their fear of receiving counterfeit or faulty goods without any guarantee especially cross-continent.
AI Generated Image by Tingting Zhang’s Description Prompts:
A key factor contributing to this apprehension is the individual-level decision-making process, where decision makers are individually accountable for their purchases and sales within a supposed ‘closed cycle (balance sheet)’ based on their KPI and OKR. This could result in unstrategic and immature decisions, despite being guided by corporate strategy guidelines. Consequently, rather than investing in local inspections in the far continent like Europe or America, before dispatching goods, most prefer to extensively travel to vet 100 potential suppliers, ultimately selecting only one or two to fulfil their needs.
Communication Barriers: It’s deeply ingrained in the culture of individual decision-makers to prioritise profit and risk avoidance with a one-sided perspective pressured by their leaders.
AI Generated Image by Tingting Zhang’s Description Prompts:
This approach complicates negotiations with suppliers regarding returns or quality issues, resulting in a preference for zero upfront payment reflected in corporate long term strategy. Consequently, this dynamic can hinder effective collaboration and strain relationships within the supply chain.
Invisible Hand of Low Price: As for the low prices, even end B2B customers, such as giant platforms, purchase at rock-bottom prices due to the inability to sell at higher rates over time. Chinese markets possess a formidable capability to continually drive prices down, adhering to the belief that ‘there is no lowest, only lower’.
AI Generated Image by Tingting Zhang’s Description Prompts:
But that’s not the sole underlying reason:
Within large Chinese ecommerce companies, there exist multiple departments with similar functionalities but distinct names, all engaged in cutthroat internal competition. Identical products are frequently listed multiple times on same platforms; without privilege possibilities for traffic given, price competition becomes the sole determining factor for success, dictated by algorithms and ranking laws. This competitive ethos, ingrained in the culture, perpetuates a constant struggle for survival where ‘competition ensures definitive winners’ — that’s again rooted in 卷(Juan3), the inflation on effort, and the vicious loop of price competition. Given the substantial profit potential, numerous dealers readily accept unilateral terms and engage in other risky endeavors, thereby fueling a vicious cycle perpetuated by supply chain finance-supported operations. Consequently, any significant action taken by traders or wholesalers can swiftly impact prices overnight, given the fragile structure and logic of operations.
A disruptive mechanism or system capable of eliminating the unilateral terms would be the ultimate solution to dismantling the vicious cycle.
4. A heavy bonus: Chamber of Bluffing
We completed our journey through the three chambers, a daunting adventure.
Now, onto the bonus: the Chamber of Bluffing. This tale may be one of the heaviest you’ve ever heard.
AI Generated Image by Tingting Zhang’s Description Prompts:
I frequently receive screenshots via WeChat showcasing discussion on unbelievably low prices for products.
Recently, a major Chinese importer approached me with a grievance. Despite my facilitation on their direct connections with a luxury brand, they expressed frustration over a competitor’s claim of procuring a massive shipment directly from the brand’s headquarters, and pre-selling it at a price 10% cheaper than what we had procured from the brand directly.
I reached out to the brand’s director, who adamantly denied any such deal, clarifying that the competitor in question was a historical client of theirs with offices in both Europe and China, and they were previously declined on the mentioned batch.
Upon hearing this, the importer shared an intriguing anecdote that made me ponder what if they apply their talent on noble endeavours.
In today’s trading landscape, bidding reigns supreme. The lowest bid secures large quantities for sale, while the highest bid secures large quantities for purchase. Enter a notorious company that sells reputable beauty products at extremely low prices; they allow a few select large buyers to bid on future batch, scheduled to arrive in three months. Buyer ‘A’ won, while Buyer ‘B’ lost. However, the details remained obscure, including time frame.
The losing buyer ‘B’, seized the opportunity to spread word far and wide, falsely indicating ownership of the batch and boasting an exceptionally low price. This triggered a chain reaction: the winner ‘A’ cannot pre-sell the bid they acquired because of the the extraordinary low price ‘B’ declared; real buyers waited, expecting rock-bottom prices, while those who had already stocked up panicked, offloading their goods at a loss before it was too late;.
‘B’ swiftly bought up all available goods within a month, then proceeded to sell at exorbitant prices, before ‘A’’s shipments to China. This temporary manipulation may have momentarily inflated product prices, as ‘B’ assumed significant risks and financial pressures to monopolize the market. However, it disrupted normal supply chains, especially for official distributors struggling to move the goods they had purchased from brands.
This is a blatant yet ironic example on Sun Tzu’s axiom from ‘The Art of War’: ‘In war, nothing is too deceitful’ is aptly applied to the battlefield of business in China.
In navigating such complexities, is adherence to logic and experience the sole paramount factor? We observe a new layer of influence stemming from culture and its impact on business practices.
THE DISRUPTIVE CURE
Navigating price dumping, counterfeiting, and sales tracking challenges while managing cash flow presents a formidable task. This intricate dance, resembling a toxic relationship, appears stubbornly resistant to change.
AI Generated Image by Tingting Zhang’s Description Prompts:
Both luxury brands and the giant Chinese ecommerce industry have undergone years of development, establishing deeply ingrained beliefs and business patterns. They’ve achieved tremendous success, with vast populations participating in their economies.
However, when two mature phenomena with their own deep-rooted histories collide, innovation is needed to restore harmony.
Is there a real solution? Thinking outside the box, yes, there surely are. That’s how economies evolve.
We aim for brands to sell their products healthily, to mitigate the vicious cycle caused by extreme super products concept, and to eradicate counterfeiting. At the same time, we aspire for sales and economic growth without being constrained by financial limitations or payment terms.
We need to disrupt the traditional idea and way of operating.
Thinking expansively unveils tangible solutions: fostering healthy product sales, curbing the dominance of extreme super products, and combating counterfeiting. Exploring decentralised cash flow and embracing decentralised storytelling offer promising paths forward. In my endeavours across trade practices, marketing strategies, and technological integration, I tirelessly strive to develop practical models for implementation.
Note: All illustrations, except for Jiaqi Li's, are AI-generated based on Tingting Zhang's description prompts.REGARDING THE AUTHOR AND THE CURE SHE ENDEAVOURS
My name is Tingting Zhang, and I’m specialising in B2B-to-C omni-channel commerce especially within the Chinese-speaking market, with over 18 years of experience.
I’m a trader, I’m a marketer, and I have honed my international expertise in this niche, offering valuable insights and innovative strategies to drive business growth with solid tech agile operations:
1. I have demonstrated an exceptional proven track record of building sales channels, establishing revenue from 0 to 7 million over a span of 3 years;
2. As a complex solution-oriented expert with a focus on corporate innovation, I spearheaded the development of a dynamic supply chain search engine in collaboration with the former CTO from Morgan Stanley and Goldman Sachs;
3. I have an unfair advantage on Omni-channel management for Chinese speaking market that handled numerous cases of omni-channel marketing and wholesale with various established brands and emerging brands.
I am currently offering my extensive expertise and consultancy services as a senior interim management member, specialising in navigating the complexities of operational models within the Chinese speaking market for large corporations.
In addition to my consultancy work, my CTO (previous CTO of Morgan Stanley) and I are seeking funding to re-build and launch our groundbreaking automated discovery eCommerce SaaS platform, Cross-Border Influencer.
This enterprise solution aims to address the challenges of B2B wholesale and marketing integration, driving tangible success for brands’ sustainable growth with following keywords: commission-based marketing with story telling, experience-based campaigns on innovative data science and machine learning, and scenario-based discovery commerce.
I have compiled a comprehensive set of materials, tiered accessible through this link:
https://linktr.ee/crossborderinfluencer
Please feel free to reach out via ting@crossborderinfluencer.com
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