Perhaps one of the few groups to have benefitted from Brexit is Chinese tourists. Known for their enthusiasm for purchasing luxury goods overseas, the depreciation of the pound has allowed them to own a piece of Louis Vuitton or Chanel at a much cheaper price. However, a recent report titled “RE-Lux: Waves of Change Impacting Luxury Brands” from Fung Global Retail & Technology Group reveals that this shopping frenzy is not likely to be long-lasting.
UK Becomes a Hot Destination For Luxury Deal Hunters From China
China has been known as one of the most expensive places for luxury shopping, with a large price gap between China and the UK. According to research on global price differences published by Exane BNP Paribas, luxury goods in China cost about 21 percent more than the global average. Prices in the UK on the other hand are about 18 percent cheaper.
Before Chanel decided to adjust its prices in Europe, for the cost of a single Chanel bag in China, consumers could purchase a roundtrip ticket to Europe and afford to buy the Chanel bag they spotted back in China, the Wall Street Journal reported.
For Chinese travelers, the pricing differences between China and the UK and the depreciation of the pound are alone enough to justify a trip to the UK solely for luxury shopping purposes.
Duty-free shopping makes this even more affordable and Chinese tourists have responded enthusiastically to these opportunities. According to figures from tax-refund service Global Blue, Chinese visitors increased their tax-free spending in the UK by 25 percent in September. This figure jumped by 58 percent year over year during this year’s Chinese Golden Week in October, a national holiday as well as a key window for overseas shopping.
Will The Traffic of Chinese Shoppers Continue To Grow?
Research from Fung Global Retail & Technology Group shows that while Chinese tourists are spending more in this current macroeconomic climate, it’s unclear whether this high spending rate will continue to grow sustainably.
According to Visit Britain, Chinese tourists to the UK spent an average of £2,000 during their visits last year, a sharp decrease from 2013 when average spending reached £2,500. Overall, per capita Chinese tourist spending dropped by 9.1 percent between 2015 and 2016 in Britain.
According to Fung Global Retail & Technology Group, sustaining robust growth will be even more difficult since many luxury brands decided to raise UK prices in response to the depreciation of the pound.
That’s because while greater savings is good news for price-conscious Chinese luxury shoppers, luxury brands fear that cheaper prices will decrease the image of exclusivity they are trying project. This move could also deter Daigou shoppers from profiting off of price differences by stocking up on luxury goods in Europe and reselling them back in China.
High-end brands such as Burberry, Chanel, Louis Vuitton and Rolex have increased their UK prices to reduce the difference between UK and global pricing. Chanel said it needed “to reach consistent price levels” between different parts of the world.
How Should Luxury Brands React?
According to data collected by Spottedfashion.com, Chanel raised its classic flap bag price by more than 10 percent in November 2016. Louis Vuitton has also pushed up UK prices three times so far in 2016, with the biggest increase at almost 20 percent.
While big luxury powerhouses have already responded in kind to pounds devaluation, Paul Hunt, president of Pricing Solutions, advised brands to be cautious about making significant changes to prices.
“By making large adjustments to prices, especially in response to a temporary macroeconomic effect rather than a more permanent competitive or quality-based argument… may have extreme unintended consequences,” he wrote, “they risk distorting the perceived value in vastly different local markets (Europe vs. China vs. the United States).”
Jasmine Seng, management consultant at Accenture, reflected a similar viewpoint, suggesting brands should still be in control of their pricing strategy despite currency swings, and look for growth opportunities from customers who are not price sensitive “because they enjoy the experience of shopping at the brand, as opposed to merely owning a product from the brand,” she said. “Luxury brands should focus on delivering an exquisite customer experience in order to stay relevant and attractive to customers.”