CHINA FASHION BUSINESS

Guest: Ren Qin:Co-founder and Principal Appraiser of Huimai(A platform for luxury exchange and resale), a member of China Horologe Association, Fellowship of Gemological Association of Great Britain(FGA), a member of International Gemological Institute(IGI)

A brief history of the second-hand luxury market in China

The second-hand luxury market has undergone several phases in China. In the last century, the foreign players needed to invest about 5 million yuan to start up the second-hand luxury business in China, they need open at least one store to store goods.

With the advent of the e-commence, the threshold of start a business became low. Opening a shop on Taobao(Chinese version of Amazon) only cost about 1-2 million yuan.

And then the threshold became even lower with the birth of Wechat stores. Technological innovation lowers the threshold for us to start a business every time, allowing more individuals to start their own business and offering more information to customers. 

Later came the livestreaming e-commerce. It’s a new way of selling goods that with no stock, they earn the commission by selling goods via livestreams for second-hand luxury stores.

In addition, at present studios for pre-owned luxury resale is available with only 500,000 yuan.

What kind of second-hand luxuries have the circulation (investment) value?

First of all, a valuable second-hand luxury must have three characteristics:

First, it must be easily recognizable. For example, a Hermes bag can be identified from five meters away.

Second, it must be standardized, such as watch and jewelry.

Third, it must be easily circulated. For instance, it can be pawned or auctioned effortlessly in the third market.

China’s resale landscape

The secondhand luxury market is made up of pawnshops, auction houses, and daigou. Now even those who used to do private loans have also joined in this business. Moreover, with the plus of customer resources, the medical aesthetic businesses are also entering this market

The purchasing price of second-hand luxury goodsin the inland cities, such as Nanning and Lanzhou, is higher than that in the costal cities. Why is their market price higher than the coastal cities? Because in inland cities the operating costs are lower (rent, labor, etc.) so that owners can spend more money on goods, but they have fewer sources than owners from coastal cities. 

The foreigner players of secondhand resale have already entered China. There are two listedJapanese companies on our platform. One is Komehyo, who used to make clothes and then turned into the pre-owned luxury market. When the economic bubble burst in Japan, many consignment companies for secondhand luxury resale sprang up, such as daikokuya and Komehyo.

Why are second-hand luxuries more suitable for investment in a downturn time?

Pre-owned luxuries are also international except the three characteristics I’ve just mentioned. Unlike jade, which may be not accepted by foreigners, secondhand luxuries can be imported and then exported to the country with better economy, and the price point can be based on the world standard. While the price of secondhand cars in China is more expensive than that abroad. All these reasons make the secondhand luxury market popular at present.

When the economy is at a low ebb, the luxury brands will be more popular. Here are the reasons: 

First, it’s because of the scalability of China’s resale business. China became the world’s largest markets of luxury goods s in 2018, which means we have a huge amount of luxury goods in people’s wardrobes. When the economy is in a downturn,our present economic status is like Japan in the last century, the government is short of money, the stock market is a disaster, mortgage loaners will fall behind on home loan payments, and jobs will be hard to find, these people need more money so they will release their luxury goods at home in order to exchange for cash

Second, it is the market education that livestreams have done to customers over the past years. Consumers are now spending wisely, which means that customers tend to get better service with less money. Moreover, livestreaming platforms educate customers and let more consumers know the availability of luxury resale. 

So the secondhand luxury market heats up now.

The popularity of second luxuries can be seen from the following examples:

Komehyo give summer seasonal subsidies to their employees according to their share price. Its stock price hit a record with 2900 yen per sharek these days. Now the economy is going down, many people in Japan are selling their luxury goods. Komehyo operates on the consumer-to-consumer model.  The company buys luxuries from individuals then sell them to other individuals, in addition the company t can sell the products to pawn shops, auction houses, or other secondhand luxury businesses for cash. So even when the economy at a low ebb, the company’s stock pricestill rises. 

Another example is the pawn shop we are partnering with, which is based in Minhang district, Shanghai. The pawn shop only deal with houses and cars before, butt now houses are too expensive and the market for cars are being taken over by second-hand car dealers, so now they want to enter the pre-owned luxury market, and ask us to help them do handle authenticity certification, and disposal. 

Before they partnering with us, the total price of their inventory was about 1.2-1.5 million yuan, and the majority of their stocks was gold, because gold is relatively easy to evaluate and certify. 

Third, an increasing number of people were short of cash because of the pandemic. They pawned their property for money, and second-hand luxuries are good and lightweight for pawning. 

In the wake of the outbreak, small business owners and pre-owned car dealers were short of cash, so they mortgaged their valuable items to pay their employees or further production. As a result, the stock of the pawnshop could reach a value of more than 3 million yuan, and the total value was increasing by 600,000 to 800,000 yuan every month. 

After the success, they thought it was time for the pawnshop to return to the secondhand luxury market. Before pre-owned cars and houses were lucrative sector, but now the second luxuries are in the spotlight.

Fourth, secondhand luxury sector can be operated independently.

The second-hand luxury market has huge potential, and it can be an independently-operated ecological circle. Pre-owned luxuries can be purchased, sold, pawned, cared, and remade. For example, you can take down the diamond on your ring and remake it to create a new feeling, or you can change the gold ring setting according to the fashion style. It’s a kind of after-sale service called “Luxury care and DIY”, which is also popular in Douyin(Chinese version of TikTok). 

How shall an individual start up a business in this sector?

Take our platform for example, we have a startup program called “Huimai” Partners. Partners do not need to stock up goods, they can just source pre-owned luxuries to us. Then we will authenticate and evaluate them so that there will be no problem of authenticity after. Partners only need to introduce products sources to us. After we sell the products, we will give commissions to the partner.

The partners can also be our sales agency. They can gradually expand their business from “one-person business” to “an online shop” then to a physical store. 

Now to startup a business, you need to ensure it is low-cost and flexible to make adjustment.

Second, if you have the license, you can be a pawnbroker. The model of a pawnshop is that customers can mortgage their items for cash, but this will cost them “combined interest fees”(loan interest plus storage fee). In total this will charge 4% of the amount borrowed each month, which means 48% a year. What kind of business can achieve 48% return? If the stock of the pawnshop reaches millions of yuan, the combined interest fee can reach 1.6 million yuan. 

Third, there are many startup opportunities for DIY designers in the remake market, just like in the car modification market. For example, an old-fashioned watch can be fashion again with some added diamond and gem. Moreover, Louis Vuitton bags can be hand-painted both officially and unofficially now. Consumers can also ask other designers to remake them, such as painting on them patterns of Yayoi Kusama, and this is called remake.

Fourthly, the popularity of secondhand luxuries heats up training courses of authentication. There are also many opportunities for self-employment.  

The sale of pre-owned luxuries is combined with authentication. But the field is mixed because there are some charlatans. So we must ascertain whether the institution has the qualification authentication.

In short, there are many projects can be carried out and many startup opportunities in this sector.

Translated by Gu Zhenheng