Luxury-goods sales to remain slow: analysts

Updated: 2016-01-01 11:22

By Amy He in New York(China Daily USA)

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Sales of luxury goods in China will remain sluggish in 2016, with brands limiting the opening of new stores and closing some, according to analysts.

The culprits, they say, are what hurt sales in 2015: China's economic slowdown, consumers' preference for shopping overseas for lower prices and a decrease in gift giving due to the government's austerity and anti-corruption campaigns

"I think the market within China is still going to be tough for a while," Avery Booker, a partner at consulting firm China Luxury Advisors in Los Angeles said in an interview. "I don't think there's going to be any big change in the way people shop in the interim. People are not going to say, 'Okay I'm done shopping overseas, I'm going to shop in China now.'"

Prada, one of the top luxury brands, said it will consider closing a number of stores in China in the coming year, citing "complicated" market conditions in China that contributed to the brand's 38 percent third-quarter decrease in profit.

Louis Vuitton announced in November that it will close eight stores in second-tier cities, nearly one-fifth of its stores in China, and the company reported a 9 percent loss in Asia in the third-quarter with China sales "suffering."

Hong Kong, a long-time shopping destination for mainland residents, is expected to post its biggest annual decline in retail sales due to fewer Chinese tourists. The Hong Kong dollar is strengthening at the same time that the Japanese yen is weakening, causing Chinese to go to Japan and elsewhere for luxury goods.

Los Angeles-based CBRE, a commercial real estate brokerage, said in a report that Chinese shoppers buying goods overseas due to a weakening Chinese currency and the government's campaigns have led to sluggish luxury market sales, which is likely to "continue to weigh on the mainland luxury space" over the short-term.

"Due to the increasing convenience and lower cost of overseas travel, the intelligent Chinese luxury shopper is provided with more information and a wider selection of choices. As such, many Chinese consumers are no longer satisfied with shopping domestically," CBRE said.

Some brands have been reducing the price gaps for their products sold across different regions to ensure they are not cheaper elsewhere.

Luxury watchmaker Patek Philippe cut prices for its watches in Hong Kong by 7 percent in February. Chanel made headlines in March when it announced it would cut the price on its signature flap bags, dropping the price by $1,300 to $1,400. Prada executives said in December on a call with analysts that it would be doing the same.

To fight the sales slump, some brands with brick-and-mortar stores have been focusing on mobile-and e-commerce sales.

"While new store openings across the mainland may be slowing, brands are increasing their efforts in digital and e-commerce, not only as supporting channels but as integral pieces to their brand communications and operations in China," said Iris Chan, head of client services at Digital Luxury Group, a research and market intelligence firm in Geneva.

Chan said that global luxury companies cannot ignore the importance of Chinese consumers and that digital efforts are vital to their brands in China.

Booker of China Luxury Advisors said luxury brands that are doing well in China are those that realized the potential damage the anti-corruption and austerity campaigns would do to sales, and quickly adapted by focusing heavily on mobile-and e-commerce, as well as expanding in preferred shopping destinations like South Korea and Japan. He singled out Burberry as an example.