Following in the footsteps of Louis Vuitton and Gucci, the British fashion powerhouse Burberry is going to lower its retail prices in mainland China on July 14, Jing Daily has learned. The pricing adjustment will apply to categories from the ready-to-wear to bags and the average reduction rate is around four percent.
A Burberry Spokesman, reached by Jing Daily about the pending cuts, said
“Burberry is very supportive of the decision to cut import duties on luxury goods in China. The government’s efforts are a clear positive for consumers. In response to this, we have decided to lower prices on a range of our products in China.”
Starting from July 1 this year, the Ministry of Finance has lowered import duties for an average of 21 percent on a basket of consumer goods, in a bid to drive more luxury consumption at home.
The recent price cuts by big-name luxury brands in the country coincide with the escalation of the trade dispute between the United States and China. Last week, the U.S. Trade Representative released a new round of proposed tariffs on $200 billion worth of Chinese goods – and bags were among the targets.
“It depends whether these tariffs are actually implemented, if they are reciprocated, and if they just concern China or Europe too,” said Luca Solca, Head of Luxury Goods Sector at BNP Paribas. “If this only applies to China for exports to the USA, then I’d see an adverse cost of goods (COGS) impact for US accessible luxury brands. I imagine they will try to offset that through a combination of efficiency and price adjustments.”
On July 11, Burberry reported a three-percent growth in retail sales to 479 million pounds ($633 million) in the first quarter of this year, citing strong demand from the American and Chinese markets. However, the ongoing Pound’s rally against the Chinese yuan, which is seen likely by analysts to continue in the near term, casts a shadow on Burberry’s ability to further profit from affluent traveling Chinese consumers.
“We do find our Chinese clientele will move depending on currency and how currency is moving and basically we had far fewer Chinese tourists in Europe, in the UK and continental Europe this quarter, they were shopping more in Asia,” said Julie Brown, Chief Financial Officer, during an earnings conference call on July 11.
The upcoming retail price reduction in mainland China, which is poised to make Burberry items more appealing to domestic consumers, can help to offset the potential negative impact on its retail sales due to the exchange rates.