International luxury brands count on China
May 19, 2020 Category China News Round-up, Weekly
International luxury brands increasingly see China as a safe haven, with high-end consumption reviving and many luxury companies raising prices. But experts warn that even the most affluent consumers have psychological limits in the wake of the Covid-19 pandemic. In less than three months, French fashion house Louis Vuitton has raised its prices twice. Prices went up about 5% on May 5, following a hike of 3% in March. The latest increases equate to CNY1,000 to CNY3,000 on average for some of its bags sold in the Chinese mainland. Chanel is also raising its prices. The price hike strategy amid the Covid-19 epidemic reflected expectations of luxury makers that sales may surge in the post-pandemic period, which could help offset some losses incurred during lockdown periods. Bain & Co estimated that the market for personal luxury goods declined 25% in the first quarter due to the pandemic. The slowdown could accelerate in the current quarter and lead to an estimated contraction of 20% to 35% for the full year.
LVMH, the world’s largest luxury goods company that has more than 70 brands, including Louis Vuitton, saw sales in the Chinese mainland rise by more than 50% in April, according to Bloomberg. SKP, Beijing’s high-end shopping destination with luxury brands, celebrated its 14th anniversary. Although the mall limited visitor numbers and required advance reservations, the Global Times found that there were long lines at the outlets of Louis Vuitton and Chanel.
Yang Qingshan, Expert with the Luxury Research Center of the University of International Business and Economics, said that luxury brands usually go against broader economic trends in setting prices. “Unlike other goods, luxury brands usually need high prices to maintain their image in the minds of customers.” The impact of the pandemic means those brands will certainly ramp up their promotional efforts in the Chinese market, Yang said. But if sales in China underperform, luxury retailers are very likely to incur losses globally this year. Also, if price hikes are seen as excessive, there might be a backlash from consumers, the Global Times reports.
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