Chinese shoppers are known for their love for luxury brands, and the latter have had successful days on the Chinese market so far. Indeed, some wealthy Chinese consumers are attracted to quality products and won’t mind the price.
It seems however that the situation is changing. Sales for these luxury brands have been decreasing recently. It is the case for several brands in different sectors: fashion, spirits, cars or watches.
All brands in the luxury sector are impacted by this drop in revenues.
The spirit sector was hit pretty badly.
Diageo, the British giant which owns the brands Smirnoff, Johnie Walker and Baileys has taken a $411.5 million hit on the Chinese market.
Rémy Cointreau also sees a decrease in its sales. The French spirits company which produces Rémy Martin cognac, Mount Gay rum or Cointreau and Passoã liqueurs has seen its sales decline by 9% in China. Other players in this market like Pernod Ricard for example appear to experience the same phenomenon.
The fashion industry has also experienced a drop in profits.
If Burberry or Prada’s numbers are not really decreasing, the brands are experiencing a serious slow down and their revenues stayed flat for the last half year. This stagnation in business also appears to affect LVMH which used to report double-digit growth rates a few years ago.
The luxury automakers and watchmakers also report a drop in revenues these past months.
How to explain this drop in revenues for luxury brands?
Several reasons could explain why brands are seeing their numbers falling in China.
Some luxury fashion brands are afraid that Chinese consumers buy their products abroad rather than in China. Indeed, there are people buying these luxury products in bulk overseas and selling them for cheaper prices back in China. Why is that? Luxury goods are way more expensive in China – mainly due to high import duties – and the Chinese Ministry of Commerce estimates their price is about 50% higher than in the USA and even 70% higher than in France.
Another reason for that decrease could be the presence of counterfeits on the Chinese market. This has been the case for years but it is getting harder for consumers to distinguish whether or not the products they can buy (online or offline) are authentic.
One recurring explanation is that luxury goods are not being purchased as much as they used to because of the Chinese government crackdown on corruption among its officials. Indeed, it has been more than common in China to bribe bureaucrats with luxury brand products. Thousands of officials were disciplined after the multiple anti-graft and anti-extravagance measures were passed by Xi Jinping’s government.
Their reputation is Changing
Finally it would appear that luxury brand do not have the same image in the eyes of Chinese consumers as they used to have. Brands which were once ranked as the best are no longer appealing to the Chinese elite. It is the case for Louis Vuitton for example whose products have been seen too much among consumers in China. One other factor which should be pointed out is that younger consumers are nowadays looking for products without such discernible brands: their aim is not to show labels anymore.
Chinese consumers search better option
Chinese consumers are searching new brands, different design, something special that suit more to them that a “normal” Louis Vuitton Bags.
They search for something different… They search mainly online and when they travel oversea.
They use social media, follow brands and buy if their positioning really match with what they want to be. Strange ? not really.
What do you think ?