China’s slowing economy, falling share prices and Beijing’s anti-corruption campaign are all heavy blows to the country’s luxury goods market.
Chinese consumer spending on luxury goods declined 2% on the year in 2015, falling for the second year in a row. Sales of expensive business gifts for men fell particularly sharply, with wristwatch sales down 10% and those of clothes slipping 12% from a year earlier.
Hermes has maintained strong sales at its shop in Wuhan International Plaza in China’s Hubei Province.
Slowing sales are forcing many overseas designer brands to close stores. German label Hugo Boss has shut down 11 shops in China, while Italian fashion designer Prada has closed 16 stores over the past two years. French luxury brand Louis Vuitton has closed the doors on five shops.
(Don’t) flaunt it
High-end European brands are now moving cautiously in the world’s second-largest economy, carefully considering where to open new stores. At the same time, they are closing larger outlets with around 100 sales clerks per store to shore up flagging profits.
But it is an overstatement to say Chinese consumers no longer care for luxury items. Their overseas spending on those goods rose 6% on the year in 2015, and Japan has been a big beneficiary. Chinese tourist spending on luxury goods soared by 251% in Japan, thanks to a weaker yen and a big increase in the number of Chinese visitors.
As many Chinese consumers try to avoid high tariffs and high domestic prices caused by the country’s convoluted distribution system, they are opting to buy high-end products abroad or from online retailers overseas.
Keep it at home
The Chinese government is doing its best to get people to spend more money at home. To slow luxury spending overseas, China’s customs authorities have been conducting rigorous checks of travelers’ luggage at airports since last September. Observers believe that has slashed sales of luxury goods purchased overseas by Chinese resellers to about 34 billion yuan ($5.21 billion) in 2015 from 75 billion yuan a year earlier.
Foreign luxury brands, meanwhile, have been rushing to adapt to changing consumer behavior in China. For years, they could rack up sales simply by opening stores in big cities. Things are different now. “The point is how we can attract individual customers, going forward,” said a 43-year-old marketing specialist with a luxury jewelry brand in Shanghai.
Because they are buying more for themselves these days and purchasing fewer gifts, Chinese shoppers are increasingly drawn to one-of-a-kind or limited-edition products. Hermes, a Parisian fashion label, is known for its conservative store expansion strategy and selective product line. Its earnings have held up well, even in the face of China’s slowing economy.
Such limited-edition strategies are “what Japanese companies excel at,” said the jewelry marketer. This is a business opportunity for Japanese companies that can find creative ways to appeal to China’s still luxury-hungry consumers.
By Kosuke Okame Courtesy Nikkei Asian Review