LV's performance is declining, second-hand transactions are rising, and Europe is experiencing a "consumption downgrade" in luxury goods

Due to the sluggish demand for luxury goods globally, the performance of European luxury giants like LVMH has declined, and the spring of the second-hand market has arrived again...

In October, LVMH, the world's largest luxury goods group, unexpectedly reported a decline in third-quarter sales, with all major departments failing to meet analysts' expectations. The core fashion and leather goods sector also experienced its "first decline in four years." Meanwhile, Kering and Burberry have both seen double-digit declines in sales over the past few quarters. These trends seem to indicate that European consumers are undergoing a "downgrade" in luxury consumption.

On November 5, JP Morgan analysts Chiara Battistini, Olivia Townsend, and Apurva Vishwaraj released a report stating that, in the current environment where consumers may be more focused on cost-effectiveness, consumer behavior may be changing. At the same time, the inventory of luxury goods in consumers' hands is increasing, and competition among second-hand trading platforms is intensifying, showing persistent signs of weakness in the soft luxury segment.

JP Morgan also noted that many second-hand luxury handbags are priced 40-50% lower than new ones, with some even dropping to 60%. This price advantage has made the second-hand market a new choice for consumers seeking high cost-performance luxury goods.

The Second-Hand Market is Large and Continues to Expand

Over the past 15 years, the second-hand luxury goods market has rapidly expanded, with many companies entering the field and quickly scaling up. A report released in 2022 by BCG in collaboration with Vestiaire Collective estimated that the second-hand fashion and luxury goods market is valued at $100-120 billion, three times that of three years ago.

In 2023, a study by Bain Altagamma estimated that the second-hand luxury goods market will generate €45 billion in revenue, 1.7 times that of 2019, accounting for over 10% of total luxury consumption. Moreover, industry experts remain optimistic about future expansion opportunities and growth rates, with BCG predicting that the market will continue to grow at an annual rate of 20-30% in the coming years.

Currently, some companies have already achieved considerable scale and continue to grow strongly.

The RealReal expects to achieve approximately $600 million in sales this year, an increase from $549 million in 2023, and to achieve EBITDA profitability in the company's fiscal year 2024. Vinted's sales reached approximately $640 million in fiscal year 2023, a year-on-year increase of 61%, with an EBITDA profit margin in double digits and a profit of $20 million (calculated at the PBT level). Vestiaire Collective's revenue in 2023 reached approximately €160 million

Professionalism, Quality Service... Second-hand Platforms Accelerate "Benchmarking" Luxury Authenticity

Second-hand platforms not only offer richer and more flexible buying and selling options but also invest to enhance service quality and reliability to boost consumer trust. For instance, Vestiaire Collective employs auction house experts to authenticate high-end luxury goods and launched a "Brand Certification" program in 2021. In the same year, eBay also introduced the "Authenticity Guarantee" service, covering categories such as sneakers, high-end watches, and luxury handbags.

Tirath Kamdar, eBay's Global Luxury General Manager, stated:

“In the two and a half years leading up to April 2023, we verified over 2 million items through the Authenticity Guarantee service. All this data helps eBay and our partners establish better processes.”

Although the second-hand market cannot provide the same level of "premium" service and some "story-driven" and "personal" experiences compared to luxury brands, they are still working to bridge this gap and build customer loyalty. The RealReal offers VIP members dedicated concierge services, home appointments, van pickups (if available), birthday rewards, VIP invitations to in-store events, and free priority ordering.

JP Morgan believes that second-hand platforms, especially leading ones, may benefit from the virtuous cycle currently forming. The more consumers are willing to buy and sell on these platforms, the greater the transaction volume, which in turn increases supply, improves product quality, and availability. This, in turn, may attract more customers to use the platform, supporting continued growth in the sector.

Luxury Brands "Reverse Compatibility" Relief

With the rise of second-hand brands, some luxury brands are beginning to reassess their market strategies. Richemont was the first company to choose the "if you can't beat them, join them" approach by acquiring the second-hand watch trading platform Watchfinder.co.uk, actively entering the second-hand market.

Kering Group acquired a 5% stake in Vestiaire Collective, attempting to capture the trends of younger consumers. JP Morgan points out that today's younger consumers may be more focused on finding the best value propositions than previous generations and take pride in scoring a good deal. The rise and strong growth of fast fashion over the past 20 years have changed how consumers view spending and perceive bargains.

Additionally, Burberry has also established a similar partnership with The RealReal.

However, not all brands are open to the second-hand market. LVMH Group's Chief Financial Officer Jean-Jacques Guiony has explicitly stated:

“Second-hand is actually first-hand goods, parallel products that are just directed to certain platforms. We will never invest in platforms that can present parallel products to customers.”