High-end brands closing mainland stores as Chinese spend more overseas

By Huang Ge Source:Global Times Published: 2016-4-25 19:43:01

Losing luxury

While Chinese consumers have continued to buy luxury goods across the globe, China's luxury market has slipped into decline. An industry report showed that about 83 percent of luxury brands shut down some of their stores in 2015 - a trend that is expected to continue. The shift in consumer spending to foreign markets has been driven by the growth of outbound tourism, experts said. As Chinese consumers change their spending habits, luxury brands will have to employ a more tailored, localized marketing strategy in the coming years.

Handbags are displayed at the shop windows of a Louis Vuitton store in Fuzhou, East China's Fujian Province, in January. The French luxury brand closed three of its stores in China in the latter months of 2015. Photo: CFP

On a Saturday afternoon in April, a woman surnamed Wu browsed for handbags in an almost empty luxury brand store in Beijing's Chaoyang district.

"I love buying the handbags of  luxury brands like Chanel, LV and Dior, but I usually purchase those bags when I travel abroad," she told the Global Times on Saturday.

"Although the prices of luxury goods sold on the domestic market have gotten cheaper, I'm just not that crazy about buying these products in China."

One of the store's employees said that there had been a time when customers would line up outside the store when a new product hit the shelves. But nothing like that has happened "in the past two years," she said.

While a growing number of Chinese customers have been seeking to buy goods worldwide, the Chinese mainland's luxury goods market has been declining.

In 2015, the market shrank by 2 percent to 113 billion yuan ($17.39 billion), according to a report issued by the global market research firm Bain & Company in January.

 The decline largely resulted from a slowdown in sales of watches, menswear and leather goods, according to the report.

Given the downturn, three tags can be used to describe mainland's luxury market in 2015: discounting, pricing adjustments and store closures, experts noted.

A tide of store closures

More and more luxury brands have been closing stores in recent years. About 83 percent of luxury brands shut down stores in China in 2015, according to a report released in April by the Beijing-based iResearch Consulting Group, which predicted the trend will continue.

For example, French luxury goods maker Louis Vuitton closed three of its stores in China in November 2015, including what had been its first store in Guangzhou, capital of South China's Guangdong Province.

 It is expected to shutter several more stores across the country in the near future, media reports said.

German luxury retailer Hugo Boss shut down 20 of its stores in China last year, the iResearch report said.

Italy-based fashion brand Gucci closed five stores. Prada, also from Italy, also closed two outlets during the same period.

Besides store closures, foreign luxury brands have responded to the shrinking market in China by adjusting the prices of their products.

For example, French fashion house Chanel raised the prices of its most well-known handbags - the 11.12, the 2.55 and the Boy bag - in Europe in April 2015.

But it also cut prices in Asia, including on the mainland and in Hong Kong, to offset the decline of the euro and discourage customers from buying fakes, according to media reports.

Turning to foreign markets

Liang Luofei, an industry analyst from the iResearch attributed the slump in China's luxury sector to the fact that the growing number of Chinese outbound tourists have largely driven consumer spending abroad.

"Last year, Chinese consumers bought $116.8 billion in luxury goods across the globe, among which about $91 billion - 78 percent of the total - was purchased overseas," Liang told the Global Times on Friday.

Chinese customers have shifted their attention overseas because many luxury products are cheaper in foreign countries than on the Chinese mainland due to high customs taxes, experts said.

China Customs levies tariffs on imported goods at rates ranging from 15 percent to 60 percent, according to a statement released by the Ministry of Finance on March 16.

Furthermore, the government also imposes a value-added tax and a consumption tax on luxury imports, making the final retail price of imported luxury goods as much as 67 percent higher than their cost, insurance and freight price, domestic retail industry portal linkshop.com said in March.

In 2015, Japan topped the ranking of destinations that attract luxury shoppers from the mainland, Bain & Company said in its report.

"I prefer to go shopping in Japan more often as it only takes a few hours by air and the visa policy has become more open," a 20-something white-collar worker in Shanghai surnamed Yu told the Global Times on Sunday.

"I would also like to buy expensive foreign goods such as cosmetics and jewelry through daigou [overseas personal shoppers], to save some money," Yu said.

In April, the central government instituted a new tax on overseas purchases to clamp down on daigou and encourage more domestic spending.

Although products bought overseas are still subject to customs tariffs, they're still cheaper than if they were purchased on the mainland, Liang said.

Xue Shengwen, an industry analyst at Shenzhen-based CIC Industry Research Center, also told the Global Times on Friday that goods will still remain cheaper overseas thanks to discounts and local tax refunds.

The luxury sector has also been hit by the government's campaign against corruption and official extravagance, Xue noted.

Future prospects

Some changes took place in Chinese consumers' spending habits toward luxury goods - customers' growing individualism continued to trend toward fashion and exclusivity, and smaller, fashion-orientated brands are still growing in popularity among the public, experts said.

Conspicuous consumption has declined while luxury experience spending has grown, and Chinese consumers have become increasingly open to new brands, Hong Junjie, director of the research center for luxury goods and services at University of International Business and Economics, told the Global Times on Friday.

Moreover, customers, especially among the emerging middle class, are becoming more knowledgeable and confident about purchasing overseas goods online.

"With the growing development of e-commerce, online shopping for overseas products has gotten a lot more convenient, so it is easy for me to buy luxury goods in other countries at a better price," a customer surnamed Zhou in Beijing told the Global Times on Sunday.

Xue from the CIC Industry Research Center predicted that the domestic luxury sector will continue to shrink, and about 95 percent of luxury brands will be forced to shut down some of their stores on the mainland in the coming years.

The current domestic luxury sector is going through a necessary stage. Besides, it will continue to suffer for a certain period of time, but eventually stable growth will return, Hong told the Global Times.

Luxury brands must employ a more tailored, localized marketing strategy in the coming years, with high fashion content.

Furthermore, they need to adjust their pricing to reduce disparities across geographies, experts said.

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