Live Issue... Luxury brands face rise of second-hand market

Once upon a time, luxury was recession-proof. Not any more. After years of ‘democratisation’, many luxury customers can no longer afford to splash out - luxury sales globally are expected to be down 15 to 20 per cent in the first half of 2009, and down 10 per cent in Japan, Asia’s key luxury market.

One trend to come out of this is the growth of ‘second-hand’ luxury - consumers either renting luxury goods for a short period or buying used luxury goods. For brands that still base their image on exclusivity, is that a good thing or a bad thing?

The trend’s origins lie before the downturn. In the US a company called Bag Borrow or Steal was set up to offer luxury rentals - it even received a heavy endorsement in the film version of Sex and the City. Equivalents have been slower to take off in Asia, but there is now momentum. A company called ORB has been operating in Japan since 2007 but reports a 50 per cent surge in members (to 1,500) since August. Meanwhile, a company called Newell began offering luxury rentals last year and already has 500 members.

More popular have been the second-hand stores. Second-hand retailer Brand Off has 40 stores across Japan, and prices approach full retail for some items. “Prices for popular Hermès and Louis Vuitton items in second-hand shops are often not much different to the original prices, while prices for less popular brands can fall off quickly,” says Steve Snipes, managing partner at Lux Research Japan. “Second-hand shops are a good indicator of brand and product popularity.”

Snipes believes that Japan’s second-hand market will have some long-term positive effects on luxury brands, as they encourage trading up. “Some consumers we’ve interviewed say they feel less guilty about buying the latest model handbag to replace one they had for only one or two seasons because they know they’ll be able to trade it in for a fair price,” says Snipes.

Brand Off is expanding across Asia, and opened its first store in Hong Kong last year. Hong Kong’s homegrown used luxury retailer Milan Station is also reporting a boom in second-hand luxury sales. Tony Chan, chief marketing officer of Milan Station, says that since the economic crisis hit, the 10 Milan Station stores have seen a five to seven per cent increase in business, compared to the same time a year before.

One issue is that an increase in the number of ways in which consumers can access luxury should make the experience less exclusive. It also moves the customer relationship with luxury products outside of an environment the brands can control. “Many luxury brands have moved into retail in order to control the environments in which they are acquired,” says Mike Langton, MD of Interbrand, Singapore. “For these brands, the experience is of a ‘selling ceremony’ and not merely a sale.”

In Taiwan, TNS tracks some of these channels in an online panel. According to Roger Pang, associate director at TNS Taiwan, four per cent of respondents say they have rented a luxury bag or bought one second-hand, and a quarter are interested in trying. Pang sees the growth of luxury bag rentals and second-hand luxury boutiques as a sort of back-handed compliment.

“The willingness of women to try these services proves they crave these products. They could just as easily buy a pirated bag, but they really want the real bag, even if rented or second-hand. That proves the strength of the luxury brand” he added.

The question is whether that strong brand equity will translate into revenues for the luxury houses. “If women rent bags, does this mean they won’t buy them from the brand owner?” asks Pang. “That we don’t know.”

Got a view?
Email [email protected]