Luxury brands cutting prices in China

28 July 2009

BEIJING: An increasing number of luxury brands are reducing their prices in China, a strategy linked to currency fluctuations by some manufacturers, but which is also seen as a response to the fact many consumers are cutting back on premium purchases.

The World Luxury Association estimates that the Chinese luxury sector was worth $8.6 billion (€6.0bn; £5.2bn) last year, some 25% of global category revenues.

Moreover, it is predicted the world's most populous nation could soon overtake Japan to become the sector's biggest single market, while Bain & Co.'s respected spending forecast also argues it is one of the few areas set to enjoy growth this year.

Recently, the China Brand Strategy Association estimated some 250 million consumers in the Asian nation are in the market for buying luxury goods, where Porsche, Hermès and Prada are currently said to be among the most popular high-end brands.

However, Louis Vuitton, part of LMVH, the world's biggest luxury goods group by revenue, has recently begun to offer discounts of between 100 and 200 yuan on some of its products.

Gucci has also started to cut the price of a selection of its handbags by as much as 50%, with Salvatore Ferragamo and Dunhill following a broadly similar strategy for certain products across their portfolios.

High-end labels like Escada, Armani and Versace are also changing their approach to inventory management in China in line with developing patterns of consumer behaviour.

According to the China Daily, more than half of the 110 fashion brands operating in Plaza 66, one of Shanghai's most prominent shopping malls, have also been running sales of varying magnitudes.

While currency fluctuations were mentioned by some brand owners as the reason for this new approach, Li Xianze, professor at the Central University of Finance and Economics, said the "real reason is the financial crisis that discourages luxury spending."

"These brands may have opted for price cuts to try to stem sales declines as spending on luxury items may have been curtailed," Andrew Darryl, ceo Synovate, similarly stated.

However, he continued that many premium brands in China do not seem to suffer from negative perceptions associated with commoditisation, which is said to be one of the risks of price reductions.

"It is interesting to see how stores in Hong Kong thrive on sales of second-hand Louis Vuitton and Gucci bags. Even when they are used, consumers still ascribe considerable value to the brand and its products," Darryl added.

Data sourced from China Daily/People's Daily; additional content by WARC staff