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Luxury brands reel as Chinese buyers turn thrifty
25
May '16
As Chinese customers turn thrifty, some of the world's biggest luxury brands are feeling the heat. After a decade of expansion at breakneck speed fuelled by Chinese consumer demand, both the brands and the consumes are running out of steam, according to a Bloomberg report

New store space accounted for 55 per cent of global luxury revenue growth over the past eight years, while Chinese nationals powered about two-thirds of luxury market's growth over the past decade.

Now with the boom going bust, German luxury fashion house Hugo Boss has already announced plans to close 20 of the 131 stores it directly owns in mainland China. It's reviewing as many as another 20 of its least-profitable 430 stores globally.

The company is in talks with its landlords, so not all of these outlets will close -- but it expects to announce a sizeable number of exits later this year.

Gucci and Zegna were among luxury brands to cut their store footprint in the first quarter of 2016.

Italy's Prada won't say where its selective store cuts might fall, but as it expanded aggressively in Asia, it's a good bet that some will be there.

A clutch of other luxury brands are reviewing their retail network in Hong Kong and Macau. This could include closures, moving to cheaper premises or lease renegotiations.
Indeed, seeking rent reductions is an alternative to outright closure.

According to Bloomberg Intelligence, rent reductions of as much as 50 per cent are possible in some locations in Hong Kong. But demand remains strong for space in premium malls, limiting the scope for discounts.

In mainland China, tenants have most bargaining power in new malls, particularly in second-tier cities, hit by a slump in demand and plentiful new supply.

While the most attention might be on China, globally, brands are focusing on making their existing stores work harder. Rather than planning large scale openings, existing outlets are being refurbished.

The luxury groups are right to halt their dizzying expansion, and start to cut back. As they do, there could be opportunities for more niche upmarket brands to expand. Kering's Saint Laurent and LVMH's Givenchy Fendi and Celine could all open stores at more attractive rents.

And here's another trend that mirrors what is happening on high streets and main streets. As mid-market brands retrench, discount players are moving in to make the most of selling affordable luxury items. (SH)

Fibre2Fashion News Desk – India

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