High-end product sales pick up as brands cut prices, build presence online

By Li Xuanmin Source:Global Times Published: 2017/2/27 19:38:39

Luxury lives in China

China's luxury product market started growing again in 2016 after three straight years of stalling. The return to growth resulted largely from luxury brands lowering their prices, diminishing the long-grumbled-about price gap between the Chinese mainland and other markets, consumers and analysts said. Luxury brands have seen sales jump as they have moved sales channels online, hoping to reach younger shoppers and potential consumers in second- and third-tier cities.


A pedestrian walks by the SKP Beijing mall in Chaoyang district on Saturday. Photo: Li Xuanmin/GT

After three years of flat sales, luxury products are back in vogue on the Chinese mainland.

At SKP Beijing, a high-end shopping mall in Beijing's Chaoyang district, consumers flooded the high-end luxury store for brands such as Chanel, Burberry, LV, Fendi and Gucci over the weekend. In some stores, there weren't enough sales people to serve the seemingly relentless waves of customers.

"Foot traffic is up about 20 percent from the same period in 2016," said an employee at Cartier SA's store, who preferred not to be identified. "Jewelry sales were the first to pick up, then watches," she said.

The employee told the Global Times on Saturday that the French jewelry maker had its best Valentine's Day ever in terms of sales this year.

For the holiday, Cartier rolled out a special service on its WeChat store, We-Boutique, in which handsome men dressed as bellhops delivered purchases, along with a bouquet of flowers, to customers who ordered one of 150 specially designed Valentine's Day bracelets.

The bracelets, priced at 30,600 yuan ($4,457), sold out a week after they went on sale on the WeChat store, the financial news website caixin.com reported.

Cartier's sales have improved on the Chinese mainland in 2016, store employees said.

Cartier reported its sales grew 6 percent year-on-year in the fourth quarter of 2016, with Chinese mainland consumers driving its sale growth in Asia, according to the company's financial statement.

Other major luxury brands also saw their sales rise on the mainland in 2016. In the third quarter, Burberry's retail sales rose 4 percent year-on-year, in part because of accelerated sales on the Chinese mainland, according to a statement the company sent to the Global Times on Friday.

Hermes' sales on the Chinese mainland jumped 7.1 percent in 2016, helping to bring its total annual sales to 5.2 billion euros.

Kering Group, which owns Gucci and YSL, announced in February that its same-store sales in 2016 soared 11 percent in Asia, excluding Japan, "led by a rebound in China."

In addition, an unnamed industry analyst said a plunge in the number of "inside shopping sessions," in which luxury brand store workers purchase items with their employee discounts, financial news portal caixin.com reported.

A drop in this phenomenon reflects reduced stockpiling - a good sign for the industry, Zhou Huaishan, founder of the Beijing-based Yishang Think Tank, told the Global Times on Friday.

Consulting firm Bain & Company estimated that sales revenue jumped by 4 percent year-on-year in China's luxury market in 2016.

China's luxury product market was the largest in the world in 2016, accounting for 30 percent of global sales, according to a report by Boston Consulting Group.

Sales pick up

Luxury brands have cut prices on the mainland to bring them more in line with prices elsewhere in the world. Mainland prices are still more expensive, but the gap has narrowed, which consumers and analysts said is one reason behind the pickup in sales. For example, the price of a ­Burberry classic cashmere scarf has come down to 3,900 yuan, or about 900 yuan higher than its price in the UK, said 28-year-old white-collar worker surnamed Wang, who was shopping at SKP Beijing.

"It used to cost 5,000 yuan," she told the Global Times on Saturday.

The high markups and hefty import tariffs on luxury goods sold on the Chinese mainland had led to an explosion in shopping agents know in Chinese as daigou. These agents buy products abroad and sell them to domestic consumers at below-mainland prices.

It's a grey market that accounts for about 60 percent of China's luxury spending, according to Cai Sujian, head of the Jiangsu-based China Luxury Institute.

The daigou phenomenon is one reason why Chanel announced in early 2015 that it would slash its prices on the mainland market by 20 percent. Since then, luxury brands such as Saint Laurent Paris and Cartier have cut their prices on the Chinese mainland to bring them more in line with those around the world.

According to a report by New York-based business intelligence firm L2, among the 29 luxury brands it researched, 45 percent of their prices on the Chinese mainland market are now less than 15 percent higher those sold in the US.

"When the price gap falls to an acceptable range, price-sensitive Chinese consumers will opt to buy locally," Zhou said.

At the same time, the Chinese government has cracked down on gray market smugglers and taken measures to stimulate domestic demand, such as adjusting tariffs and promoting duty-free shops, Cai said. Those measures have started to have an effect.

In the first half of 2016, the proportion of luxury goods that Chinese consumers purchased abroad fell to 40 percent, down from 43 percent in the first half of 2015, according to a report by marketing platform ContactLab.

The industry's recovery coincides with rising middle class incomes, according to experts.

"This group cares more about money management and asset allocation and has contributed a lot to the growth of luxury product sales," Cai said.

Moving online

Many luxury product companies are jumping on the online bandwagon through business-to-consumer sites, third-party e-commerce platforms such as Tmall and JD.com Inc or retail websites that specialize in luxury goods.

Around 80 percent of luxury brands now have an online presence in China, according to a report by New York-based bilingual luxury industry news provider Jing Daily.

And online sales for luxury goods grew 20 percent year-on-year in 2015, according to another report by L2.

"Traditionally, luxury brands stayed away from digital channels because they worried that participation would dilute their brand value and image," Zhou noted.

But now, luxury product companies have come to see the Internet as an important tool to reach younger consumers, as well as those from second- and third-tier cities, where the companies have very few stores, experts noted.

For example, Italian luxury carmaker Maserati, which opened a store on Tmall in 2016, has received 433 online orders for vehicles as of February.

The majority of those orders have come from areas where Maserati doesn't have dealerships.

Zhou predicted that online customers "in second- and third-tier cities will be the new engines of growth in luxury spending."

But Cai wonders if online customers will be as eager to buy without the physical experiences or premium service that comes with shopping at a store.



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