The headlines are here again. The 11.11 shopping festival is over and some results look very impressive—beauty sales up 24.8% year over year, Tmall reported 79 beauty brands exceeded 100 million RMB ($14 million) in sales. Some outlets were even suggesting China’s economy is back on track.

This is not the case, and you have to be operating brands in China to really understand what is going on behind these huge numbers.

The economy is tough, you can feel that on the streets, talking to beauty retailers, suppliers, factories, and consumers at all levels, people are feeling the pinch.

So why do the numbers for 11.11 look so good?

Distorted Metrics

One of the primary drivers of inflated gross merchandise value (GMV) is the aggressive use of promotional coupons on Tmall, which encourages consumers to purchase more than they intend to keep. For example, many shoppers add items to their carts to meet minimum spend thresholds for coupons, only to cancel unwanted items immediately after placing their orders. These cancellations occur before products are shipped, leaving refund rates high with many brands at 30-50% of GMV; some more. While this strategy boosts GMV, it distorts the reality of consumer intent and true sales revenue.

Subsidies and Membership Discounts Fuel the Illusion

Platforms like Tmall heavily subsidize promotions, pouring billions into traffic acquisition and programs such as 88VIP, which offers members exclusive discounts and premium bundles. Tmall reportedly invested ¥100 billion ($14 billion) in subsidies this year alone, trying to compete with sites like Pinduoduo. While these measures drive traffic and sales volume, they do so at the expense of profitability for brands and platforms alike.

For beauty brands, these promotional activities often lead to a trade-off: they may achieve higher GMV during the festival but find themselves grappling with razor-thin or negative profit margins. Executives evaluating China as a growth market should take these realities into account when setting expectations for revenue and brand-building.

The Race to the Bottom in Pricing

Luxury beauty brands have long relied on exclusivity and premium pricing to uphold their allure and margins. However, in the fiercely competitive Chinese market, these brands are increasingly sacrificing margin for market share through aggressive discounting during Double 11.

Case Studies in Pricing—The Illusion of Value

This year, luxury brands like La Mer and Helena Rubinstein leaned heavily on promotions that amplified perceived discounts through high-value Gifts with Purchase (GWP). Here are two examples of the offers that were available in this year’s 11.11:

• La Mer – The Treatment Lotion
  • Regular retail price: ¥1,520($210) for 150ml
  • Double 11 offer: Buy two for ¥3,040($422) and receive ¥3,180($442) worth of GWP
  • Perceived discount: 51% off
• Helena Rubinstein – Replasty Age Recovery Night Cream
  • Regular retail price: ¥6,350 ($881)for 100 ml
  • Double 11 offer: Buy one for ¥6,350 and receive ¥6,110 ($849) worth of GWP
  • Perceived discount: 49% off

While the reverse repurchase agreement (RRP) of these products remained untouched, the perceived value of GWPs increased significantly, rising by 20-25% compared to last year. This was achieved by including more GWPs or upgrading them from deluxe sizes to full sizes.

The Cost of Perceived Discounts

Although these tactics drove sales volume, they exacerbated margin pressure. Luxury brands are now caught in a cycle of escalating promotions, training consumers to expect ever-deeper discounts and more generous GWPs. This "race to the bottom" in pricing not only erodes profitability but also risks undermining the brand equity that luxury brands have spent decades cultivating.

Hainan and Duty-Free Disruption

Compounding these pressures is the rise of Hainan as a duty-free shopping hub. Tax-free pricing and aggressive bundling in Hainan offer consumers significant savings, often surpassing even Double 11 deals. For example, products from La Mer and SK-II are heavily discounted in Hainan, further pushing brands into price wars.

Strategic Implications for Brands

For luxury beauty brands in China, the current model of relentless discounting and promotional bundling is unsustainable. To preserve profitability and brand equity, executives must consider alternative strategies, such as:

• Focusing on exclusive, limited-edition offerings rather than steep discounts
• Leveraging experiential marketing and loyalty programs to build deeper consumer relationships
• Reevaluating participation in high-cost promotional events like Double 11 and redistributing resources toward year-round brand-building activities

But it is tough for brands to go at it alone; there needs to be a critical mass of brands making the change.

For now, just be aware that the headlines about record breaking 11.11 need to be looked at in context. The Chinese economy is still tough but there are opportunities and brands forging a different path.