Luxury powerhouses like LVMH and Kering SA are facing a fast-growing foe in China: a grey market that sells brand-new, authenticated goods procured in other countries for discounts of up to 40 percent on the mainland.

Currency exchange fluctuations and Chinese shoppers’ growing price-consciousness has given new life to arbitrage in luxury goods, dominated by an e-commerce platform called Dewu. The value of Louis Vuitton goods sold over Dewu grew 11 percent to 2.6 billion yuan ($358 million) in the first half of 2024, compared to the same period last year, people familiar with the matter said.

That’s over 14 percent of Louis Vuitton’s total estimated sales in China of €2.3 billion ($2.5 billion) for the same period, said the people, who spoke on condition of anonymity. Sales of items from other labels like Christian Dior, Hermès, Chanel, and Prada have also seen double-digit growth in the first half of this year on Dewu compared to the same period last year, the people said.

Dewu’s rising clout is bad news for global luxury giants who are already grappling with slowing growth in China. While the items resold over the platform were still purchased officially from the brands in other countries, contributing to revenue, these parallel imports erode profit margins and lay waste to the billions of dollars that fashion houses have invested in building up stores and operations in China.

It’s unclear if luxury houses are aware of the extent of grey market in China, though executives have flagged the danger of another form of parallel imports: Chinese travellers saving their spending for trips overseas, particularly Japan where the weak yen has made shopping cheaper.

“For the time we still see a lot of Chinese travellers, particularly into Japan, which basically says something about the appetite of Chinese customers for our brands,” LVMH chief financial officer Jean-Jacques Guiony said at an earnings call last week. “But it comes at a notable cost from a profit and margin perspective.”

LVMH’s sales in the region that includes China slumped 14 percent in the quarter through June but soared 57 percent in Japan. With the yen standing at 34-year low against the euro, this means a significant portion of the growth happened at a lower price, Guiony said.

At Kering, revenue in Asia Pacific declined 22 percent in the first half of the year, mainly driven by worsening performance in Greater China, compared with 22 percent growth in Japan, said chief financial officer Armelle Poulou at an earnings briefing last week. A third of spending by Chinese customers took place overseas in the second quarter, mostly in Asia including Japan, she said.

“Dewu is the digital version of a flight to Japan,” said Jacques Roizen, managing director of China consulting at Digital Luxury Group. “The prices that you can get in Japan, you can get them on Dewu.”

Dewu accounted for 73 percent of China’s grey market revenue for 10 top luxury brands across key categories as of August last year, according to a report by consultancy Re-Hub. Alibaba Group Holding Ltd.’s Taobao accounted for 26 percent.

Dewu, LVMH, Chanel, Kering and Hermès did not respond to requests for comment. Prada declined to comment.

Kering’s shares have slumped 7.8 percent since it warned last week of further profit drop in the second half. LVMH’s shares fell 7.2 percent since its first-half results, announced mid-last week, missed analyst expectations.

Discounts and Authenticators

The sellers on Dewu procure luxury items from stores or online platforms in other countries and transport them into China. Thanks to hefty luxury taxes and a disconnect between brand pricing in China and the rest of the world exacerbated by its Covid isolationist period, the trade is profitable for these parallel importers known as “daigou” even after shipping costs and discounts.

On Dewu, a classic large, black Chanel Flap bag is sold at a 33 percent discount, nearly 30,000 yuan ($4,130) cheaper than the official price in China. A small, brown Louis Vuitton Carryall bag with its iconic monogram print — one of the brand’s hottest items in the country this year — is sold at a 20 percent discount. Over 4,000 of the bags have changed hands in just the last three months. Such discounts are highly attractive because these top luxury labels almost never offer promotional price cuts.

Formerly known as Poizon, Dewu was founded in 2015 by chief executive officer Yang Bing as a sneaker resale marketplace. The platform has attracted a growing base of young, tech-savvy users due to its unique operation model — it only features sellers offering the lowest prices and provides authenticators to screen every item before it reaches the buyer.

On China’s social media, tutorials about how to flip luxury goods on Dewu abound. One such video shows the entire process of buying a Gucci belt for €315 ($341) overseas, having it shipped into China via Hong Kong, and then re-selling it on Dewu for $460 — still 20 percent cheaper than the official price in the country.

Overall, China’s daigou grey market is estimated at $81 billion for all industries, with the luxury sector playing a key role, according to the Re-Hub report. Unauthorised sales could represent as much as 70 percent of some labels’ official turnover in mainland China, according to a Bain & Co. report in March.

Parallel importers have also evolved into highly organised and professional businesses, Re-Hub said. They have significant buying power and can obtain large volumes of luxury goods through brands’ wholesale, duty-free or retail channels, according to the report.

Another factor that’s caused China’s grey market to balloon has been excessive inventory from many luxury brands due to an over-estimation of post-Covid demand for their goods, said Frank Müller, founder of consultancy firm the Bridge to Luxury. This has damaged brands’ exclusive images because items are available everywhere, from wholesale channels to different resellers locally.

While top luxury brands like Hermès, Louis Vuitton and Chanel don’t have wholesale businesses and tightly control access to their most popular items, others are now scrambling to address the problem. Burberry Group Plc, which got nearly a fifth of its revenue from wholesale in the year through March, wants to cut this by 30 percent, while Kering and Prada SpA have also said they’re moving away from the channel.

Nevertheless, the damage has been done, said Müller. “Psychologically, we have trained the customers to consider these items commodities, like toothpaste or other things where we look in supermarkets for the best deal,” he said.

Welcome back to Haul of Fame, your must-read beauty roundup for new products, new ideas and tequila. It’s truly just that time…

Included in today’s issue: Catherine Earnshaw, Davines, Glo Skin, Guerlain, Ilia, Jo Malone, L’Oréal, Lottie London, NEST New York, Pacifica, Peter Thomas Roth, Pucci, RéVive, Saint Jane, Saltair, Stix, Tweezerman, Valentino, Who Is Elijah and Blake Lively.

But first

At its core, skincare is about flaw reduction. Retinol “corrects” wrinkles and cleanser “manages” breakouts.

For years, brands believed they needed to blur this messaging, shouting about empowerment, self expression, innate glamour. Basically, anything but the brutally honest “how you look really matters — and you look bad.” Call it the fourth wall of skincare: We usually don’t acknowledge that if a brand claims to make you look better, the implication is that without it, you look worse.

Lately though, some are starting to chip away at that fourth wall, acknowledging and even teasing fans about their faults, goofs and obsession with perfect skin.

Take Kiehl’s, which just did a partnership with the online meme factory the Fake Rothko. The Instagram account claims its mission is to “stand up to toxic positivity,” and regularly roasts of-the-moment status symbols like Cartier Love bracelets, On running shoes, and Carbone reservations — signs of easy wealth that we all covet a little too hard, but refuse to admit are important. (Kind of like wrinkle-free skin, no?)

Last week, The Fake Rothko began posting their signature memes — “starter packs” of items associated with wealthy, carefree, cringe-inducing New Yorkers in high-rent neighbourhoods like the West Village and Tribeca — that included various Kiehl’s products. The memes were tagged with #KiehlsPartner (a euphemism for #sponcon) and referenced the brand’s summer pop-up shop in Montauk.

“It’s the first time we’ve done a true branded post,” said Brandon No-Last-Name, the anonymous editor of the Fake Rothko. He and a college friend began the account five years ago from their Ivy League dorm room. “We are not extremely wealthy!” he said, laughing. “But we’ve been around the lifestyles we spoof on the account quite a bit. And yes, lots of our classmates did use Kiehl’s! As do I, honestly. It’s very good.”

Brandon’s day job is in social media, and he says this collaboration — a respectable (but not ridiculous) six-figure deal — is performing well in terms of conversion behaviours like click-through rates to the brand’s social media pages. Engagement is about the same as a typical non-branded Fake Rothko post, which speaks to its seamless content integration.

Still, he cautioned that “when a brand wants to work with a meme page, it should be less about directly converting to sales, and more about being part of a conversation, or dare I say it, the zeitgeist.” Even getting the product in front of the account’s followers — most of whom are Gen-Z or young Millennials; all of whom are conversant in luxury culture — should be enough of a reason for brands to pounce on the opportunity, said Brandon.

“Some of these groups of people are really hard to crack,” he added. “Letting people see, ‘Ok, here are my options for skincare or for clothes or restaurants,’ even laid out as a satire, is extremely valuable.”

But isn’t this Kiehl’s ad just mocking its potential customers and their trust-fund, clear-skin aspirations? “A lot of our followers might be kind of loath to admit it,” said Brandon, “But they probably see a heightened or more dramatic version of themselves in these memes. It lets them laugh at themselves.” Harnessing that humour can be a key pathway to brand recognition and allegiance. Laughter lights up a different part of the brain than aspiration, broadening the literal mindshare.

Of course, not everyone wants to be spoofed — something the Fake Rothko learned after including a luxury fashion brand in a meme this Spring, then getting a strongly-worded objection to the roast. But the company also left a comment on the Fake Rothko’s post, which harnessed their existing audience at no cost to them.

Even those who truly revile the Fake Rothko’s spoiled archetypes seem invested in their product hauls, according to the page’s analytics. “When you’re thinking of a West Village trust fund princess, maybe she’s not the most fun to be around,” said Brandon. “But you better believe that she has good taste in skincare.”

What Else Is New

Skincare

As extreme heat waves continue, more skincare lines are (wisely) introducing intense moisturisers in a lighter gel form. RéVive’s Hydrogel Moisturiser Hyaluronic Acid Water Cream fits that bill; it became available on July 25.

On July 30, Saint Jane hit Amazon Beauty. I’m a big fan of their retinol cream, which works without causing peeling, but the label’s higher price point makes me curious how it’ll do on such a mass platform.

Also on July 30, Versed released a “hydration trio” including Soft Launch Gentle Hydrating Cleanser, Water Rush Intensive Hydrating Serum and Hydrating Eye Gel at Target. There’s a lot of aloe in those formulas, which retail for under $15 each.

Tweezerman released twelve Disney Princess tweezers on July 29. I find this hysterical, because although Belle, Jasmine, etc. have wonderful cartoon brows, I cannot picture them yelling “ow!” in the mirror whenever one goes astray.

Saltair introduced body oil with SPF 30 on July 25. It’s $26 and seems like a great way to get Gen-Z to help prevent sun cancer without feeling like it’s a chore. If you’d rather fake your sun entirely (smart!), Ilia Beauty’s new Sunshift Cream Bronzer dropped on July 30 in four shades.

Do very long names make skincare products sound more effective? Peter Thomas Roth’s two new products might make the case: Even Smoother Instant Reveal Facial Peel + Microdermabrasion Exfoliating Pore Purifier hit shelves on July 29.

Makeup

Pucci’s designer Camille Miceli and Guerlain creative director Violette Serrat have collaborated on a deeply gorgeous mini-range. Products include bronzer, eyeshadow palettes and lipstick, all packaged with the brand’s iconic swirly patterns. The items launch on August 26. I’m letting you know about it now, because this type of designer buy-in, at a much lower price point than sunglasses or shoes, will likely sell out fast.

Youth culture brand Lottie London dropped a Soft Grunge palette on July 25. This is unsurprising — we know teens are obsessed with the 1990s — but it’s still funny to see an $8 beauty palette named after institutional rage. But the actual shades are great.

Also on the 1990s beat, Glo Skin Beauty launched Satin Lipstick and Conditioning Lip Gloss on August 2. The products have seven “nude” shades for maximum “Living Single” beauty inspo. (For the Gen-Z readers among us: Queen Latifah’s character on the show Kadijah James was everyone’s lipstick muse circa 1997. Google her!)

Prefer your beauty references from the 1980s? Nudestix released Stax, a 3-in-1 cream-to-powder blush, on July 29. It comes in nine shades and retails for $24 each.

On July 30, Valentino’s new Colourgraph Waterproof Gel Eyeliner Pencils hit Sephora. It costs $38, expensive for eyeliner. But if you still mourn the loss of Marc Jacobs gel crayons, this is basically a resurrection. Shop in peace.

Haircare

Davines hit Sephora on July 30, making them one of the few B-Corp brands in the store. I’m a big fan of Davines in-house ingredient cultivation; like the fashion lines Maggie Marilyn and Christy Dawn, they’re obsessive about their supply chain to ensure no ethical boundaries are crossed.

Pacifica launched five (!) new collections at Ulta on July 29, including banana cream (texturising), pineapple papaya (curl care), jasmine agave (strengthening), coconut vanilla (moisturising), vanilla oat milk (volumising), and rosemary mint (scalp health) varieties.

Briogeo is doing a partnership with the spa brand Heyday; their newest signature treatment, a Soothing Scalp Revival massage, is now available to book.

TikTok moves the needle again: Google Trends reports after the “boots and a slick-back bun” chant went super-viral on the app, searches for “slick back bun” are at an all-time high. Gel and scrunchie brands, your time is now.

Will you try Blake Lively’s haircare line, Blake Brown, when it launches on Sunday, August 4? The concept is that conditioner doesn’t work, hair masking is the answer, and Hollywood stars like Lively have known this for years. I find the messaging shaky, since many masks and deep conditioners have near-identical ingredients. That said, those items can cost $50 or more; Lively is bringing them to Target at a cap of $25. If the formulas are excellent — fingers crossed — this might be a new must-have.

Fragrance

A quick scan through the news proves we all really need a drink right now. Fortunately, several new scents have mixology vibes, which hint at a luscious bar order while staying sober-curious. On July 30, Nest New York unveiled Vanilla Bourbon Eau de Parfum. It has a cocktail-y blend of brown sugar, orange bitters and whiskey. Meanwhile, D.S. & Durga launched a Jalisco Rain candle on July 31 in partnership with LALO Tequila.

On July 25, Who Is Elijah? launched Cherry Fiesta, described as being so good, “everybody will be asking what you’re wearing!” That’s the kind of messaging we love to see in fragrance — straightforward, fun, and with a clear benefit besides vague emotional promises.

Jo Malone London’s Sea Salt and Wood Sage fragrance is available as a home diffuser, starting July 31. It has “fresh mineral scents of rugged cliffs.” Which leads to two questions: Are they remaking “Wuthering Heights” again, and do they need a beauty sponsor?

On August 1, CK Fragrances launched CK One Essence, a new unisex fragrance that’s “offering a premium take on the original scent.” It has notes of Italian Bergamot and Blood Orange, and instead of Kate Moss, the scent is fronted by models like Abby Champion, Blesnya Minher, and Mathilda Gvarliani.

And finally, congratulations to Olympic rugby player Ilona Maher, L’Oréal’s newest model!

The greenhouse gases produced by customers and supply chains typically account for more than 70 percent of a company’s carbon footprint. This reality means companies cannot credibly pledge to address their environmental impact without tackling this massive source of emissions, known as Scope 3.

At the same time, problematic data issues attached to Scope 3 emissions have become legendary while some have argued companies have limited ability to influence their value chains anyway. The complexity of the topic, unsurprisingly, has proven to be a barrier for some companies trying to set net-zero targets.

But the Science Based Targets initiative, the world’s largest verifier of corporate climate goals, said we may be looking at the issue the wrong way.

In a paper published Tuesday, SBTi put forward a possible new approach aimed at enabling companies to “better assess and communicate their climate performance” in a way that goes beyond simply disclosing aggregate Scope 3 emissions.

Specifically, SBTi is exploring how to include new metrics that evaluate the alignment of a company’s procurement and revenue generation with global climate goals. Corporate Scope 3 targets “can serve as a powerful mechanism to integrate our global climate goals into the core of the economy” by focusing on how companies source goods and produce income, SBTi said.

The idea is to measure how “operational expenditure is directed towards and revenue is derived from entities, activities, commodities, products and services that have achieved a level of emissions performance compatible with reaching net-zero emissions,” SBTi said.

“Tackling supply chain emissions is conceptually more difficult than tackling direct emissions within a company,” said Holger Hoffmann-Riem, who works for the Swiss nonprofit Go for Impact and sits on SBTi’s Technical Advisory Group. “The main challenge is not to lower Scope 3 emissions, but rather to make sure that all suppliers reduce their own direct emissions as quickly as possible.”

To get on the path to achieving the goals of the Paris climate accord, SBTi said it’s assessing both emissions-based metrics that measure “impact” and non-emissions-based metrics that track “outcomes.”

But in a seemingly unlikely admission from a climate group with science in its name, the SBTi said climate science may not hold all the answers.

“While science can tell us the timeline and the shape of the emissions curve, it may not provide the requisite understanding of how companies should act to address their emissions,” SBTI said. “For many outcome metrics, such as the share of procurement spend going to suppliers with science-based targets, or the share of high-emitting commodities that are net-zero certified, the benchmarks for determining future performance levels may not be directly derived from climate science.”

Currently, Scope 3 emissions, which are measured in tons of carbon dioxide equivalent, or tCO2e, represent an aggregate of 15 different categories of emissions sources from purchased goods and services to business travel. Exploring new metrics to capture that nuance might be impactful, said Gilles Dufrasne, policy lead on global carbon markets at Carbon Market Watch.

“Saying that a car manufacturer must have a certain percentage of battery electric vehicle sales, or a steel manufacturer must have a defined amount of green steel would help us move away from the very coarse metric of tCO2e,” Dufrasne said. “The idea of complementing the greenhouse gas targets with other, sector-specific metrics is really interesting and promising.”

SBTi’s Scope 3 paper was released as part of a broader package of research that will inform an update of the group’s Corporate Net Zero Standard, its closely followed framework for corporate decarbonisation. (In a separate report the group said it found various types of carbon credits to be “ineffective in delivering their intended mitigation outcomes.”)

Designing more appropriate metrics is just one of a series of options SBTi said it’s considering to enhance Scope 3 target setting. Other ideas include a “more nuanced approach” to defining the boundaries of targets to ensure companies prioritise action on “the most climate-relevant activities,” as well as a more thoughtful consideration of the extent of a company’s influence over emissions sources.

The publication of the reports follows several tumultuous months at SBTi since its board in April appeared to sanction a wider use of carbon credits to offset Scope 3 emissions. That went against its long-held position and threatened to damage the group’s credibility.

For Doreen Stabinsky, professor of global environmental politics at College of the Atlantic, who is also a member of SBTi’s Technical Council, the Scope 3 paper is a welcome offering.

“It’s a refreshing, science-based approach, and 180 degrees different from the message the SBTi board was attempting to send in their April communique,” she said.”The answer to Scope 3 emissions is not ‘it’s so difficult, so let’s just use carbon credits,’” Stabinsky said. “It’s actually ‘let’s get much more clarity on the problems with decarbonisation in different value chains and choose approaches that address them specifically.’”

By Alastair Marsh.

The greenhouse gases produced by customers and supply chains typically account for more than 70 percent of a company’s carbon footprint. This reality means companies cannot credibly pledge to address their environmental impact without tackling this massive source of emissions, known as Scope 3.

At the same time, problematic data issues attached to Scope 3 emissions have become legendary while some have argued companies have limited ability to influence their value chains anyway. The complexity of the topic, unsurprisingly, has proven to be a barrier for some companies trying to set net-zero targets.

But the Science Based Targets initiative, the world’s largest verifier of corporate climate goals, said we may be looking at the issue the wrong way.

In a paper published Tuesday, SBTi put forward a possible new approach aimed at enabling companies to “better assess and communicate their climate performance” in a way that goes beyond simply disclosing aggregate Scope 3 emissions.

Specifically, SBTi is exploring how to include new metrics that evaluate the alignment of a company’s procurement and revenue generation with global climate goals. Corporate Scope 3 targets “can serve as a powerful mechanism to integrate our global climate goals into the core of the economy” by focusing on how companies source goods and produce income, SBTi said.

The idea is to measure how “operational expenditure is directed towards and revenue is derived from entities, activities, commodities, products and services that have achieved a level of emissions performance compatible with reaching net-zero emissions,” SBTi said.

“Tackling supply chain emissions is conceptually more difficult than tackling direct emissions within a company,” said Holger Hoffmann-Riem, who works for the Swiss nonprofit Go for Impact and sits on SBTi’s Technical Advisory Group. “The main challenge is not to lower Scope 3 emissions, but rather to make sure that all suppliers reduce their own direct emissions as quickly as possible.”

To get on the path to achieving the goals of the Paris climate accord, SBTi said it’s assessing both emissions-based metrics that measure “impact” and non-emissions-based metrics that track “outcomes.”

But in a seemingly unlikely admission from a climate group with science in its name, the SBTi said climate science may not hold all the answers.

“While science can tell us the timeline and the shape of the emissions curve, it may not provide the requisite understanding of how companies should act to address their emissions,” SBTI said. “For many outcome metrics, such as the share of procurement spend going to suppliers with science-based targets, or the share of high-emitting commodities that are net-zero certified, the benchmarks for determining future performance levels may not be directly derived from climate science.”

Currently, Scope 3 emissions, which are measured in tons of carbon dioxide equivalent, or tCO2e, represent an aggregate of 15 different categories of emissions sources from purchased goods and services to business travel. Exploring new metrics to capture that nuance might be impactful, said Gilles Dufrasne, policy lead on global carbon markets at Carbon Market Watch.

“Saying that a car manufacturer must have a certain percentage of battery electric vehicle sales, or a steel manufacturer must have a defined amount of green steel would help us move away from the very coarse metric of tCO2e,” Dufrasne said. “The idea of complementing the greenhouse gas targets with other, sector-specific metrics is really interesting and promising.”

SBTi’s Scope 3 paper was released as part of a broader package of research that will inform an update of the group’s Corporate Net Zero Standard, its closely followed framework for corporate decarbonisation. (In a separate report the group said it found various types of carbon credits to be “ineffective in delivering their intended mitigation outcomes.”)

Designing more appropriate metrics is just one of a series of options SBTi said it’s considering to enhance Scope 3 target setting. Other ideas include a “more nuanced approach” to defining the boundaries of targets to ensure companies prioritise action on “the most climate-relevant activities,” as well as a more thoughtful consideration of the extent of a company’s influence over emissions sources.

The publication of the reports follows several tumultuous months at SBTi since its board in April appeared to sanction a wider use of carbon credits to offset Scope 3 emissions. That went against its long-held position and threatened to damage the group’s credibility.

For Doreen Stabinsky, professor of global environmental politics at College of the Atlantic, who is also a member of SBTi’s Technical Council, the Scope 3 paper is a welcome offering.

“It’s a refreshing, science-based approach, and 180 degrees different from the message the SBTi board was attempting to send in their April communique,” she said.”The answer to Scope 3 emissions is not ‘it’s so difficult, so let’s just use carbon credits,’” Stabinsky said. “It’s actually ‘let’s get much more clarity on the problems with decarbonisation in different value chains and choose approaches that address them specifically.’”

By Alastair Marsh.