Cheaper luxury goods could be on the way in Asia, say analysts
Chanel and Dior have already discounted items across the region as more wealthy Chinese customers choose to shop further afield
More luxury brands are considering cutting their prices in Asia after a slump in spending by wealthy customers in China, say analysts.
“In China, we believe price cuts by luxury brands will become the norm,” said Zhou Ting, director of the Fortune Character Institute, a Shanghai-based research and consultancy group.
Sales of luxury goods on the mainland slipped by 1 per cent last year as more wealthy Chinese consumers chose to do their shopping abroad, with the strong yuan and favourable exchange rates making it easier to buy goods more cheaply overseas, according to a report by the US-based consultancy Bain & Company.
A government campaign against corrupt officials had also dented sales in China, the consultancy said.
Luxury brands hope that lower prices in Asia – including China – will lead Chinese consumers to shift their spending back to their home country, analysts said.
One leading brand, Chanel, made headlines in China last month after it lowered handbag prices by as much as 20 per cent in Asia.
French fashion brand Dior and Swiss watchmakers Patek Philippe and TAG Heuer have all reduced their prices – sometimes by as much as 40 per cent – in some Asian markets.
Italian fashion house Prada could be the next to do so, the Beijing Morning Post reported.
A company executive said that there was “room for price reductions”, the newspaper quoted a financial analyst at HSBC as saying.
The company reported its Asia-Pacific sales fell by 3.1 per cent during the past year. Prada did not respond to requests for comment.
However, a salesperson at Prada’s store in the China World Shopping Mall in Beijing said staff had not received orders to change prices.
Many luxury brands stopped their aggressive expansion plans in China last year, or even closed stores, because of the slump in sales.
Hugo Boss shut 7 shops and Burberry closed 4 outlets.
Bain & Company estimated that about 70 per cent of Chinese consumers’ luxury spending took place overseas last year.
“This trend has become more obvious as the renminbi becomes stronger against other major foreign currencies, which has created a bigger pricing gap between China and Europe,” said Zeng Mingyue, a luxury sector researcher at the University of International Business and Economics, in Beijing.
Compared with relatively quiet shops on the mainland, luxury brands’ stores in Europe were often packed with shoppers from China and some popular products often sold out quickly, she said.
“This will hurt the brands’ image and make them lose the opportunity to build up a stable customer base in China,” Zeng said.
A spokesman at the Ministry of Commerce said last week that the government applauded the decision of foreign brands to lower their prices in China.
He said the government might also take further measures to encourage people to spend more within China, rather than taking their money abroad.
One day after Chanel announced price cuts last month, long lines were seen outside the brand’s stores in Shanghai and Beijing, with some of its products sold out within hours.
“It’s certain that other luxury brands will follow Chanel’s model and cut their retail prices in China and other Asian markets,” Zhou said.
“This would be an effective tactic to boost local sales in the short term, although it could also bring the risk of devaluing the brand to become more common fashion in consumers’ minds.”