Will A Narrowing Price Gap Entice Chinese To Buy Luxury Products Domestically?

Luxury Brands Raising Prices In Europe and the US, While China Isn’t Seeing Price Increases Louis Vuitton's Neverfull PM, which is now only 532 RMB ($81USD) cheaper in the US and 936 RMB (102 euros) in France. Luxury goods in Europe and North America have historically been about one-third cheaper than the same products in China, due to China's controversial luxury tax, a price difference that has been instrumental to the increasing ubiquity of the Chinese "tourist-shopper." With this group of Chinese outbound tourists becoming an increasing presence in high-end stores around the world, Chinese media sources like the Hangzhou News have observed that the price increases recently implemented in Europe and North America by major luxury brands like Louis Vuitton (and the gradual strengthening of the Chinese yuan), mean that the price gap is narrowing. This means that buying big-name labels overseas may no longer be the bargain it once was for Chinese shoppers. From the Hangzhou News (translation by Jing Daily team): After raising prices twice over the last year, big-name label Louis Vuitton was the first to instate another round of new price increases in the European and American markets. For example, the price for the ubiquitous Neverfull PM and Tivoli PM rose from $650 USD (4,272 RMB) to $730 USD (4,797 RMB) in the US, an increase of 12.3%, and in France, the price rose from 460 euros (4,187 RMB) to 485 euros (4,414 RMB), an increase of 5.4%. The Tivoli PM rose from $1,000 USD (6,572 RMB) to $1,130 USD (7,426 RMB) in the United States and from 690 euros (6,280 RMB) to 780 euros (7,099 RMB) in Italy, both increasing by 13%. Louis Vuitton’s price increases mainly pertained to the United States, Britain, France, Germany, and Italy, among other countries. The highest gain within the United States was the Mahina leather series, which rose from $2,800 USD (18,401 RMB) to $3,550 USD (23,330 RMB), an increase of nearly 30%. Employees from Louis Vuitton’s Greater China customer service hotline said that they have yet to receive any notices about domestic price increases. The Neverfull PM is currently still 5,350 yuan (US$814) and the Tivoli PM is still 8,550 yuan ($1,301). The price difference between buying abroad and domestically has significantly lessened. With the exchange rates now 6.6 yuan against the US dollar and 8.9 yuan against the euro, buying from the U.S. is only 532 yuan cheaper for the Neverfull PM and 1,092 yuan cheaper for the Tivoli PM, already bucking the previous mentality that "purchasing abroad can be 20-30 percent cheaper." Louis Vuitton's Tivoli PM, which is now only 1,092 RMB ($166 USD) cheaper in the US and 1,451 RMB (158 euros) in Italy. The luxury industry seems to believe that pricing is a strategy in itself to push market demand, not only as a simple assurance of value but also to assure a high-end and exclusive image. For example, the price of a Chanel Classic Flap bag has doubled since 2006 and is now being sold for $3,200 USD (21,030 RMB), which is a key factor in its maintenance of an ultra-luxury status. Torsten Stocker, of the Monitor Group, a global strategy consulting firm with offices in Shanghai, Beijing, and Hong Kong, told Jing Daily that many factors may be at work behind this strategy. It could simply be "market forces at work" to balance the dependence that many brands currently have on the Chinese market, a reaction to price increases of raw materials, or an aid to help cut back on gray-market business. Beijing-based model and founder of 360Fashion.net Anina Trepte told Jing Daily that, from her observations, many consumers are still seeking purchases abroad due to import taxes. As the Chinese government has imposed more stringent customs inspections, Anina has noted that her friends “now bring back fewer goods from Europe, as the customs fines are high in airports.” Additionally, as Jing Daily reported this week, Wang Jianlin (王建林), the high-profile chairman of the Dalian Wanda Group, has stepped up to oppose China's high luxury tax, stating that the luxury tax is the single biggest obstacle to the development of a more international shopping culture in China. With these factors gradually coming together to act as a deterrent for Chinese consumers to shop for luxury overseas, buying domestically may soon become more appealing. Still, it's unlikely that they'll slow down their international shopping sojurns anytime soon.

Will A Narrowing Price Gap Entice Chinese To Buy Luxury Products Domestically?

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Published March 04, 2011

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Will A Narrowing Price Gap Entice Chinese To Buy Luxury Products Domestically?