Date
18 January 2017
Customers queue outside a Chanel boutique store in Shanghai after the French fashion house announced a rare price cut . Photo: Internet
Customers queue outside a Chanel boutique store in Shanghai after the French fashion house announced a rare price cut . Photo: Internet

Why China luxury price cuts mean gloom for Hong Kong

European high fashion retailers have been slashing prices in Hong Kong, attracting hordes of buyers.

But the price cuts are not enticing customers from across the border. Reason: mainland retailers of designer brands are also marking down prices.   

In February, a Chinese woman bought a Le Boy Chanel flap bag, the French brand’s latest hit product, for HK$37,000 (US$4,770) in Hong Kong only to learn it costs just 26,000 yuan, the equivalent of HK$32,144, in her native Nanjing, according to the Economic Observer.

Before the Chanel price cuts in China — an average of 20 percent — a Le Boy flap bag cost 32,700 yuan.

The markdown narrowed the gap between European and Chinese prices for the sought-after product to 1,400 yuan from 12,000 yuan, according to some online fashion forums.

Chinese customers have three choices to take advantage of this trend — shop locally, come to Hong Kong or go to Europe.

With the small price difference, it’s unlikely mainlanders will be bothered to leave home.

Even if, say, a Chanel product costs 1,000 yuan less in Hong Kong than in the mainland, Chanel’s Chinese fans have no incentive to cross the border to save money.

Many European fashion companies have spent a staggering amount of money to build their presence in the mainland.

Chanel alone operates 11 boutiques including six in Beijing and Shanghai.

Mainlanders bought US$25 billion worth of luxury goods in China last year, according to Shanghai market consulting firm Fortune Character China.

By contrast, about 100 million Chinese spent a combined US$81 billion overseas in that time.

The price cuts in the mainland may hurt margins but there is plenty of room to increase sales with the tighter price gap.

Other high-end brands including Prada are said to be preparing to slash their prices around the Easter weekend.

LVMH, the world’s largest luxury chain and parent of Louis Vuitton, Dior, Bulgari, Chaumet, Fendi etc., hinted at markdowns of up to 18 percent on its Chinese retail prices during the recent Baselworld Watch and Jewellery Show.

Versace could be next to jump on the bandwagon.

That can only mean one thing for Hong Kong’s high-end retailers: a tough time.

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RA

EJ Insight writer

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