China's luxury second-hand market and grey market are flourishing as luxury brands raise prices amid a sluggish economy, prompting some shoppers to seek cheaper ways to buy, deepening concerns for companies like LVMH (LVMH.PA). LVMH, the world's largest luxury goods conglomerate, reported a 3% drop in quarterly sales last week, below expectations, marking the first decline in quarterly sales since the pandemic due to weakened demand from China and Japan. Salvatore Ferragamo (SFER.MI) of Italy also reported a fall in quarterly revenue, affected by the slowdown in demand from China.

Max Piero, CEO of luxury intelligence consulting firm Re-Hub, said: "In China, as long as the price difference between China and other countries exists, price-sensitive consumers will have the opportunity to enter the grey market."

This market is estimated to be worth $57 billion annually, and the rise of platforms like DeWu in recent years has driven the development of this market. On DeWu, luxury goods are usually procured overseas, with prices ranging from 20% to 50% higher than in Chinese flagship stores.

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Re-Hub estimates that in the second quarter of this year, the sales of 48 brands in DeWu grew by 19% year-on-year, exceeding 7 billion yuan ($984.4 million). China's retail sales growth of 3.2% in September is a bad signal for global luxury giants, as China accounts for about 25% of the global luxury industry's revenue.

The growing interest of consumers in the second-hand and grey markets is a headache for high-end brands seeking to defend their sales in China. Yi Kejie, a 28-year-old marketing content manager and luxury consumer, said: "The rising prices of these luxury brands are undoubtedly one of the reasons why more and more consumers are turning to the second-hand market."

Surplus supply of second-hand goodsExecutives at LVMH, the headquarters of Louis Vuitton and Dior, defended their brands' high-end efforts and stated that they have no plans to introduce new, more affordable product lines after announcing third-quarter sales figures. They also expressed no intention of entering the second-hand market, noting that their strict control over distribution makes them less affected by the parallel market. However, the slowdown in China's economy has also driven the development of China's second-hand market, as more and more people hope to make some money from their collected luxury goods. "The number of sellers is growing very quickly, most of whom are selling luxury goods for the first time. But for buyers, the situation is quite stable," said Zhu Tainiqi, founder of the second-hand luxury goods trading market ZZER.