Lux­ury brands are still feel­ing slow­down’s squeeze

China Daily (Canada) - - FRONT PAGE - By SHI JING in Shang­hai and AMY HE in New York

China’s lux­ury in­dus­try is still feel­ing the im­pact of the coun­try’s eco­nomic slow­down and do­mes­tic con­sumers’ grow­ing in­ter­est in shop­ping over­seas.

The in­dus­try con­tracted for the se­cond con­sec­u­tive year by 2 per­cent last year, with the to­tal amount spent fall­ing to 113 bil­lion yuan ($17.2 bil­lion), ac­cord­ing to a re­port from con­sult­ing firm Bain & Co.

The de­cline was seen par­tic­u­larly in sales of menswear, watches and leather prod­ucts, which were down by 12 per­cent, 10 per­cent and 5 per­cent.

The anti-graft cam­paign, launched in 2013, com­bined with the ef­fects of the eco­nomic slow­down and stock mar­ket volatil­ity in the se­cond and third quar­ters, fur­ther pro­pelled the mar­ket de­cel­er­a­tion.

The sur­vey, which polled 1,447 Chi­nese con­sumers, found the to­tal amount they spent on lux­ury pur­chases over­seas rose by 10 per­cent year-on-year in 2015.

Ja­pan was the most pop­u­lar desti­na­tion, with con­sumers’ lux­ury spend­ing soar­ing by 251 per­cent. Con­sump­tion in the Re­pub­lic of Korea and Europe rose by 33 per­cent and 31 per­cent, re­spec­tively, while con­sump­tion on the Chi­nese main­land fell by 2 per­cent.

Cross-bor­der and over­seas web­sites took 12 per­cent of the Chi­nese spend­ing on lux­ury goods last year.

Bruno Lannes, part­ner and head of the con­sumer prod­ucts, retail and lux­ury prac­tice at Bain & Co Greater China, said in­creased ac­ces­si­bil­ity and avail­abil­ity, such as lo­cal­ized Chi­nese web­sites of some over­seas on­line plat­forms, had en­cour­aged pur­chas­ing through cross-bor­der e-com­merce plat­forms.

“We saw no­table changes in where and how Chi­nese con­sumers ac­quired lux­ury goods last year. Buy­ing over­seas has been a trend for years, but des­ti­na­tions have changed, and daigou is de­clin­ing be­cause of mul­ti­ple and con­verg­ing driv­ers from ma­jor in­dus­try play­ers, in­clud­ing the govern­ment,” he said in a re­lease about the re­port. Daigou are over­seas shop­ping agents used by con­sumers in China.

Zhai Ruoyun, an ad­min­is­tra­tive di­rec­tor at a Shang­hai-based man­u­fac­tur­ing com­pany, used to rely heav­ily on daigou in re­cent years for clothes, cos­met­ics and home ap­pli­ances. But she hardly used any of their ser­vices last year, pre­fer­ring the Chi­nese ver­sions of­fered by over­seas plat­forms, say­ing th­ese are “pro­fes­sional and much more re­li­able”.

Iris Chan, head of client ser­vices at Dig­i­tal Lux­ury Group in Shang­hai, told China Daily that dig­i­tal and e-com­merce pres­ence are not just sup­port­ing pieces to a brand’s mar­ket­ing ef­forts, but are in­te­gral pieces to their op­er­a­tions in China.

Sage Bren­nan, co-founder of China Lux­ury Ad­vi­sors, said the re­port’s find­ings are not sur­pris­ing. “There’s two big vec­tors here. One is an­ticor­rup­tion, which has made it more dif­fi­cult to sell things like high-end watches to of­fi­cials or af­flu­ent folks,” he said. “The other is the over­all knowl­edge of brands, aside from lux­ury, has got­ten much deeper—folks are not only look­ing at lux­ury brands but look­ing at low­er­priced brands. Es­pe­cially as they travel out­side of China, they’re look­ing for other brands.”

The cen­tral govern­ment is at­tempt­ing to lo­cal­ize con­sump­tion on the main­land, rolling out poli­cies that in­clude tight­en­ing cus­toms con­trols on pas­sen­gers and parcels, and re­duc­ing im­port du­ties.

Lannes said that lux­ury con­sump­tion in Hong Kong slumped by 25 per­cent last year due to a de­cline in vis­i­tors from the main­land, re­duced spend­ing and a less fa­vor­able cur­rency ex­change rate when com­pared to the ROK or Ja­pan.

Christo­pher Bai­ley, CEO at Burberry, said sales in the com­pany’s Asia Pa­cific mar­ket picked up in the third quar­ter, ex­clud­ing slug­gish­ness in Hong Kong and Ma­cao.

As the num­ber of vis­i­tors to Hong Kong con­tin­ued to drop, the com­pany’s sales in the city fell by more than 20 per­cent in the third quar­ter. Apart from ag­gres­sive ex­pan­sion by lux­ury brands Coach and Michael Kors, brick-and-mor­tar store clo­sures by lux­ury com­pa­nies out­num­bered newly opened stores last year, with 58 stores clos­ing.

Prada and Louis Vuit­ton an­nounced late last year that they will be clos­ing retail lo­ca­tions in China. Louis Vuit­ton will close up to eight stores, nearly one-fifth of its stores in China, most of them in sec­ondtier cities. Chanel and watch­maker Patek Philippe both cut prices in China, and Prada said it would do some­thing sim­i­lar.

Con­tact the writ­ers at shi­jing@chi­ and amyhe@chi­nadai­lyusa. com

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