Gap between prices of luxury goods in US and China is narrowing
After two years of decline, mainland China’s Luxury market rebounded with a 4% sales increase in 2016 as consumers shifted a portion of their spending back home from overseas. This shopping “repatriation” came after many brands narrowed the lingering gap between their prices in China and abroad. However, L2 finds that not all Luxury labels are on board with the price harmonization trend.
Recent research finds that just 45% of Luxury brands that post prices online have a gap of 15% or less between their China prices and those in the United States. All brands in this smallest price-gap range are heritage Luxury brands like Chanel, showing that higher-end labels are embracing price harmonization. Meanwhile, accessible Luxury names like Michael Kors had the highest international price differences: all brands that priced China goods at least 36% higher than in the US fall into the accessible category.
Brands regard price harmonization as a tactic to contain China’s Luxury gray market, estimated to account for 38% of China’s total domestic Luxury market in 2015. The rush of daigou sellers scooping up lower-priced goods abroad and selling them on Taobao has indeed boosted sales globally, but many brands believe the gray market does more harm than good. Third-party sellers are breeding grounds for counterfeit scams and their proliferation leaves brands unable to control customer service or brand image.
The Chinese government is on board with Luxury brands’ attempt to cut down on daigou sales, and has upped its customs enforcement to stop would-be sellers from avoiding import duties. It has also made several changes to its tax code in the past year to incentivize domestic buying, and has allowed more duty-free shops to operate on the mainland.
Several other key factors have been associated with mainland China’s Luxury rebound, including a growing middle class, the slowdown of China’s anti-corruption campaign, currency fluctuations, and lackluster Chinese tourist numbers in Europe. While Luxury brands do not anticipate that the market will return to the 35% growth that it reached in 2011, they are expecting more stable growth rates to come from the rising upper-middle class, a generally cost-savvy, rational, and jet-setting consumer group that will remain aware of global price differences for top Luxury brands.