Luxury goods market is also sluggish

Author | Zheng Qiao

Editor | Liu Baodan

The luxury brand LV, which has never offered discounts, made an exception and launched a promotion in a shopping mall in Wuhan.

Wall Street News learned that in early August, high-end shopping malls in Wuhan, including Hang Lung Plaza, introduced a series of full rebate promotions, covering first-line luxury brands such as LV. In the minds of many consumers, this was the first time LV could be purchased at an 15% discount on the mainland.

Although LV officially emphasizes that its products are never discounted, consumers did enjoy discounts in the mall's promotional activities. Subsequently, the Louis Vuitton PR team stated that the brand was not informed in advance of the related promotional activities, and once discovered, it was immediately halted.

Behind the strong promotion of top-tier malls and the disguised price reduction of LV lies the luxury goods market that has remained strong over the years, even in the midst of the epidemic.

This change can be felt from the financial reports of Hang Lung Properties, the operator of the top luxury shopping mall - Hang Lung Plaza.

For a long time, Hang Lung Properties has seen continuous growth in rental income from its high-end shopping centers in the mainland market. Hang Lung Group and Hang Lung Properties Honorary Chairman Ronnie Chan once proudly pointed out, "In the past 20 years, our rental income in the mainland has been on the rise, even during the three years of the epidemic, we have achieved steady growth. Despite the slowdown in economic growth, we have continued to break performance records."

However, according to Hang Lung Properties' 2024 interim report, although the company's total revenue increased by 17% year-on-year to HKD 6.114 billion, overall property rental income decreased by 7% to HKD 4.886 billion.

Hang Lung explained that this phenomenon was influenced by the weak retail consumption in the mainland and Hong Kong, as well as the increase in outbound tourist numbers in both places. Nevertheless, the occupancy rates of various high-end malls under Hang Lung remain excellent, with an overall high occupancy rate, especially Shanghai Hang Lung Plaza, which still maintains a 100% full occupancy rate.

While the occupancy rates of high-end malls are close to full, the overall revenue of high-end mall businesses in the mainland has decreased by 4%. Specifically, in terms of malls, the revenue of Shanghai Hang Lung Plaza and Shanghai Grand Gateway Hang Lung Plaza decreased by 8% and 4% year-on-year, respectively, and tenant sales decreased by 23% and 14%. In addition, the tenant sales of Shenyang City Hall Hang Lung Plaza, Kunming Hang Lung Plaza, and Wuhan Hang Lung Plaza also decreased by 20%, 6%, and 15% respectively.

Hang Lung Properties pointed out in the financial report that the sluggish luxury consumption in first-tier cities is the main reason for the decline in mainland revenue. Ronnie Chan, Chairman of Hang Lung Group and Hang Lung Properties, explained that in the past 12 months, with the significant increase in outbound tourists from first-tier cities in the mainland, especially those traveling to Japan (the depreciation of the yen makes local luxury goods about 30% cheaper than in the mainland), coupled with the softening of domestic consumption confidence, luxury consumption in the mainland has returned to normal levels, leading to a decline in Hang Lung Properties' performance.

Luxury giants in the Chinese market have also generally experienced a decline in sales. In the first half of 2024, both LVMH Group and Kering Group saw a decrease in revenue and net profit. Gucci's revenue decreased by 20%, while Kering Group's net profit significantly decreased by 51% Currently, influenced by various factors, Chinese consumers are in a transitional period of consumption values, and the middle class is gradually abandoning the irrational pursuit of luxury goods.

Industry insiders have indicated that in the new economic cycle, with changes in public expectations, consumers will become more cautious when purchasing luxury goods. Once there are economic issues, they will first reduce their consumption of non-essential luxury goods.

However, luxury goods are sold based on scarcity, providing differentiation that wealthy individuals desire. Can high-end malls succeed in price wars?

Zhuang Shuai, the founder of Bailian Consulting, commented that the top luxury goods industry is similar to real estate and the stock market, where it's about buying high and not selling low. The worse the economy, the more luxury goods prices will rise. If top luxury goods start to decrease in price, it will conflict with the consumption psychology of luxury goods users, affecting their consumption expectations.

Hang Lung also mentioned that the top customer base still pursues limited luxury goods provided in malls, and high-end offerings remain the core competitiveness of enterprises.

Facing a challenging environment, Chen Wenbo stated that Hang Lung Property will focus on the mainland China market, concentrating on expanding high-end retail business. Currently, around 70% of the group's assets are already positioned in the mainland China market.

Hang Lung Group also revealed at the mid-term performance meeting that Hangzhou Hang Lung Plaza is expected to open in the second half of 2025. Hangzhou Hang Lung Plaza is a high-end commercial complex, including a shopping center, five Grade-A office buildings, and the Hangzhou Mandarin Oriental Hotel.

Nowadays, the era of luxury goods real estate making money effortlessly is over. Faced with increasingly fierce market competition, high-end malls must seek new growth strategies