China struggles with declining sales in luxury brands, as customers are now more conscious of price tags, allowing luxury brand startups together with international e-commerce and cross-country purchases to make their way through the Chinese market.
Prada SpA, a leading luxury brand, announced on Friday that its sales performance for the first half of the year has reached 1.82 billion euros ($2 billion). Despite the huge numbers, the company has fallen short of Bloomberg analysts' expectations of 1.87 billion euros. Prada SpA has noticed a negative trend in its business in the entire Asia-Pacific region.
"Traditional luxury brands in the Chinese market can no longer get back to their golden age of 2011. One-digit growth or even negative performance will become common for them in the market," said Zhou Ting, a luxury brand expert with Shanghai-based Fortune Character Institute.
Sales also dropped about 10 percent year-on-year for LVMH's business in the Chinese mainland, Hong Kong and Macau. Jean-Jacques Guiony, CFO of LMVH, said during a conference call that this change in business trends enabled other markets such as EU and Japan to benefit from it.
The present weakness of the euro is one major factor that attracts buyers to purchase from the EU, according to Zhou.
Tourism plays a big part in driving sales for the luxury brands industry, as Chinese consumers do half of their luxury shopping while they are traveling, according to Bain & Company's report in May.
This year, luxury brands had a major price cut in mainland China, making Hong Kong and Macau lose their price advantage, Yang Qingshan, China Brand Strategy Association's executive president, informed the Global Times on Sunday.
Two of the most sought-after luxury brands, Chanel and LMVH, announced price cuts of 20 percent and 18 percent, respectively.
According to Yang, "given the central government's anti-corruption and anti-extravagance campaign, more and more Chinese people have stopped buying expensive luxuries as gifts, and are buying them for their own use. This makes them think more about prices and value, especially amid the economic slowdown."
Bain & Company's survey of 1,400 Chinese customers reinforced the fact that almost 45 percent of the respondents were keen on trying emerging luxury goods.
Being price-sensitive, Chinese consumers now prefer to shop via international e-commerce platforms, as well as through daigou agents and personal shoppers abroad who purchase the items and ship to customers in the Chinese mainland.
Bain's report in January also revealed that 70 percent of luxury brands in 2014 are bought either through daigou agents or during overseas travel.
To counter this situation, new product strategies and development plans are being implemented by traditional luxury brands. Some initiatives include venturing into e-commerce, diversifying product categories and reducing expenses.