Luxury goods downturn in China

By Zhang Rui
0 Comment(s)Print E-mail China.org.cn, May 29, 2015
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Gucci joined the ranks of Chanel, Prada, Cartier and Dior when it became the latest international luxury brand to institute a price cut by offering deep discounts on high-priced products at its retail stores on Wednesday. Analysts say declining profits have prompted the discounts.

Gucci joined the ranks of Chanel, Prada, Cartier and Dior when it became the latest international luxury brand to institute a price cut by offering deep discounts on high-priced products at its retail stores on Wednesday.

Gucci joined the ranks of Chanel, Prada, Cartier and Dior when it became the latest international luxury brand to institute a price cut by offering deep discounts on high-priced products at its retail stores on Wednesday.

Hundreds of people lined up in front of the Gucci store in Shanghai around noon May 27. One member of the store's staff told China Business News that the same scene happened at every Gucci store in China, and their stock "sold out quickly."

All of this is due to news circulating on social networks that Gucci stores in Shanghai, Beijing, Chengdu and other cities will start issuing a major half-price discount on most of their products. VIP guests were able to purchase discounted products in advance from May 21 to 26, while the discounts were extended on May 27 to all customers who purchased products such as luggage, bags, handbags, shoes, perfumes, scarves and eyewear.

It was not the first time that Gucci has lowered its prices in China; the brand offers regular discounts every summer. But the half-price discount is the biggest ever and is very unusual, which indicates that the brand is trying to adapt to the changing environment of China's luxury goods market.

Zhou Ting, head of Fortune Character Institute, said many luxury brands have changed their prices or offered discounts to Chinese consumers because China's luxury market is in a downturn and retailers are under pressure from a huge supply of unsold stock.

Bain & Company and Fondazione Altagamma, the trade association for the Italian luxury industry, recently released a joint report on the global luxury goods market. The report's data show that market growth has stalled in the Asia-Pacific region.

Some luxury brands have kept their prices high for a long time, while some such as Gucci have even raised the prices of some of their goods.

Now that Chinese customers have more choices and more information, however, luxury brands can no longer deliberately keep prices high. The Internet and e-commerce have significantly affected customers' shopping habits, and luxury brands are having to adjust and enhance their pricing systems, selling strategies, client relationships, promotion methods and media images.

Additionally, more Chinese people are going abroad to shop for cheaper luxury goods for themselves and for friends and business associates back home. This means that although luxury brands keep opening stores in China, these stores are not able to attract more customers. The price differences between domestic and foreign markets have prompted more consumption overseas, which has also caused chaos in the global sales systems of certain brands.

"Under such new circumstances, luxury brands have to consider a global price system adjustment," Zhou said. "China may see a new normal of regular luxury item discounts."

Gucci's parent group, French luxury and lifestyle company Kering SA, recently released new data about their 2015 first quarter performance that showed the Gucci brands underperformed in the first quarter and didn't meet expectations. In the first quarter, sales at Gucci -- which makes up around a third of Kering's revenue -- fell by 7.9 percent to 869 million euros (US$946.8 million) on a like-for-like basis, which excludes acquisitions and disposals and currency effects, as the brand's overhaul took its toll.

Kering said in April that overhauling its flagship brand, Gucci, will be the company's top priority this year as business at the label slid in the first quarter.

Gucci is going through the process of reducing stock, upgrading products, renovating flagship stores, improving product categorization and building a unique multichannel sales system.

Zhou added that luxury brands' price system adjustments are actually being made in preparation for deployment of plans to capture the e-commerce market. Gucci's latest e-commerce strategy will be implemented before the third quarter of 2015.

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