China : Global luxury brands scale down as Chinese economy slows

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Global luxury brands scale down as Chinese economy slows

08
Dec '15

International luxury brands that aggressively expanded in China over the last decade, have begun to curtail their operations as the country is harassed by an economic slowdown, a massive government crackdown on graft and a Chinese preference to buy expensive goods abroad.

According to an agency report, French retailer Louis Vuitton closed its store in the sprawling port city of Guangzhou. That was followed by two more shutdowns by the firm in Harbin and Urumqi in Xinjiang.

But Louis Vuitton said the closures were part of a marketing strategy adjustment.

During the past two years, Britain's Burberry has closed four stores in China, Coach shut two, Hermes one, Armani five, and Prada scaled down from 49 to 33.

A Shanghai-based market research firm, Fortune Character Institute (FCI) has forecast mainland luxury sales to grow 3 per cent to $25.8 billion this year, much slower than the 11 per cent in the recovering global market, Hong Kong-based South China Morning Post reported.

In a study, the institute found that although Chinese shoppers consumed 46 per cent of luxury goods around the world, their purchases in their home market accounted for only 10 per cent of global sales, falling from 11 per cent in 2012 and 13 per cent in 2013.

The sluggish growth is reflected in the expansion plans of luxury brands. They are opening fewer new stores and closing more, the report said.

"Store openings are no longer a major way for international luxury brands to expand in the China market. Over the next two years we expect these brands to close even more stores than before," said Zhou Ting, director of FCI.

"But if you think luxury brands are taking a totally defensive strategy in China, you would be wrong. The closures are only a small part of a thorough strategy adjustment they are undertaking in China," he was quoted in the report.

The first batch of luxury brands entered China in the 1990s. Most of them set up stores in five-star hotels and high-end department stores in big cities, targeting foreign businessmen, overseas Chinese and government officials.

The "golden era" came around 2009 and 2010 when affluent Chinese began spending on high-end goods and jewellery, making China the fastest-growing luxury market in the world.

Encouraged by this, luxury retailers rushed to China.

According to global consultancy Bain & Co, the 15 top brands it surveyed had opened more than 80 new shops in China during the first eight months of 2010.

But the turnaround for the Chinese luxury market came in 2013 when President Xi Jinping launched a massive anti-corruption and austerity campaign. It had a big impact on the luxury market as government officials were banned from receiving gifts.

Such expenditure had been a major driver of domestic luxury consumption, the report said. (SH)

Fibre2Fashion News Desk - India

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