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    LVMH Reduces Hong Kong Presence, Scales Up Footprint In Mainland China

    LVMH has moved some of its brands’ regional headquarters from Hong Kong to Shanghai to better cater to mainland shoppers. Will more luxury groups follow suit?
    LVMH has moved some of its brands’ regional headquarters from Hong Kong to Shanghai to better cater to mainland shoppers. Will more luxury groups follow suit? Photo: Courtesy of Louis Vuitton
      Published   in Finance

    What happened

    Once Asia’s leading international financial center, Hong Kong is losing out to Shanghai and Singapore.

    According to Bloomberg, luxury conglomerate LVMH has moved the regional headquarters of some of its brands, as well as the group’s local head office, from Hong Kong to Shanghai. The move included the relocation of some senior executives to the mainland.

    LVMH has moved the regional headquarters of some of its brands, as well as the group’s local head office, from Hong Kong to Shanghai. Photo: Shutterstock
    LVMH has moved the regional headquarters of some of its brands, as well as the group’s local head office, from Hong Kong to Shanghai. Photo: Shutterstock

    The number of foreign companies setting up regional headquarters and offices in Hong Kong declined for a third consecutive year in 2022, reports Nikkei Asia. Between 2018 and 2022, Hong Kong only welcomed an average of 950 companies each year – Singapore registered 18,000 new companies over the same period – compared to the 42,000 companies opening an office in the SAR in 2017 alone.

    The Jing Take

    LVMH’s move reflects the company’s plan to focus on investing in China’s first-tier cities, such as Shanghai, Chengdu, Guangzhou, and Shenzhen, as consumers switch to shopping domestically.

    In its first quarter 2023 earnings report, LVMH stated that Chinese tourists’ offshore consumption is growing faster than domestic consumption, but in terms of overall consumption, local spending is still four to five times higher than offshore tourism. This shows a shift in consumption habits — homegrown consumers are increasingly willing to buy luxury goods in Mainland China.

    homegrown consumers are increasingly willing to buy luxury goods in Mainland China. Image: Shutterstock
    homegrown consumers are increasingly willing to buy luxury goods in Mainland China. Image: Shutterstock

    The shrinking price differential between the Mainland and Hong Kong for goods, the expansion of brands’ brick-and-mortar footprints across China, and upgrades to in-store experiences have also accelerated domestic sales growth.

    For instance, Louis Vuitton’s Neverfull handbag in large sells for 2,200 (15,200 RMB) in China, while in Hong Kong it is priced at 20,100 (14,500 RMB), a difference of 100 (700 RMB). As this price gap shrinks, so too does Hong Kong’s attractiveness as a shopping mecca.

    In light of these trends, luxury brands are concentrating their efforts in Mainland China. In recent years, brands have increased their footprint in new areas in the mainland and opened flagship stores in new first-tier cities, such as Chengdu and Nanjing. The aim? To reach a broader spectrum of shoppers and establish long-term customer relationships facilitated by proximity.

    As China becomes an increasingly important market for luxury brands, more relocations are inevitable. Only by operating in the same environment as their customers can luxury brands keep up with this dynamic country’s pace.

    The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.

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