It has been revealed that the world's largest luxury goods company, LVMH Moët Hennessy Louis Vuitton, has requested domestic major department stores to discontinue the rebate benefits given to Chinese 'Daigong' merchants. This request stems from the increasing instances of 'Daigong' purchasing LVMH products at discounted prices and then reselling them in their home country, which undermines brand value.
According to industry sources on the 10th, LVMH sent an official letter early this month to domestic major department stores, including Shinsegae, requesting to exclude 'Louis Vuitton from the rebate refund targets for foreigners.'
Domestic major department stores have been operating a rebate system that returns about 6% of the purchase amount for 'foreign big spenders,' but it has effectively morphed into a 'Daigong rebate' as 'Daigong' merchants have concentrated in department stores.
'Daigong' has profited by purchasing Louis Vuitton products, which have a significant price difference between China and Korea, as well as models exclusive to Korea, in bulk for several hundred million won and reselling them back in China. It is reported that by taking advantage of the 6% rebate and exchange rate fluctuations, they can secure a sales margin of about 3-4%.
In particular, since products from Korean department stores carry no concerns over counterfeits, they were able to charge a 'premium' in China.
LVMH's action is viewed as effectively banning 'Daigong' sales in Louis Vuitton stores within Korean department stores, as the margin available to 'Daigong' disappears without the rebate.
LVMH's concern over the potential damage to brand value led them to intervene even in the sales practices of Korean department stores.
Bernard Arnault, chairman of LVMH, expressed strong aversion to 'Daigong' at a performance announcement meeting early in 2023, stating, 'Some trading partners sold goods at discounted prices to resellers to increase sales during the COVID-19 pandemic,' adding, 'Nothing is worse for brand image than this.'
Analysis indicates that the improvement in LVMH's performance, making 'Daigong' sales no longer necessary, is also a contributing factor. LVMH's third-quarter revenue last year decreased by 3% compared to the same period the previous year, marking the first revenue decline since the second quarter of 2020; however, revenue for the fourth quarter increased by 1%, achieving a rebound.