Posted On 2014/12/29 By In Behavior, Business, Chinese Perspective, Face, Government, Luxury, Shopping With 660 Views

Alibaba Rescues Slumping Luxury Brands In China

In April, Burberry set up a Tmall shop, the first time an international luxury brand began selling on Alibaba’s business-to-consumer site. In August, Calvin Klein followed suit. Hugo Boss’s Boss Orange line also joined Tmall.

“Digital could be ‘the next China’ for the luxury industry” writes Businessweek’s Andrew Roberts. That’s because China is on the verge of no longer being “China.”

Just ask Prada. In its first half, net sales in Greater China were down 2% year-on-year, and Richemont, the world’s largest jewelry company with the Cartier, Piaget, and Baume & Mercier brands, reported that China sales for the first half, which ended September 30, were off 4%.

Bain & Co. thinks there will be a 2% drop in overall China luxury sales this year, the first fall in more than a decade. Earlier, Bain saw a 2% increase.

Many attribute the sales turnaround to the so-called anti-corruption campaign of Chinese leader Xi Jinping. That explanation largely falls flat because Xi’s campaign, more a political purge than anything else, was in full swing last year.

There are three other explanations for the decline in China luxe spending. First, the Chinese economy is in much worse shape than it was last year, and the wealthy have been hit disproportionally hard, especially by the accelerating decline in home values.

Second, emigration from China appears to be picking up this year. In September, Barclays released a survey showing that a stunning 47% of the country’s rich—those with at least $1.5 million in net assets—plans to leave China within five years. Moreover, another 20% said they did not know whether they would stay. The country in second place, Qatar, was far behind China, at 36%.

These stunning numbers for China are generally in line with other surveys—some conducted by state banks—and with a UBS report, released last month, showing the number of Chinese citizens with at least $30 million in net assets has been growing more slowly than the Asian and global averages, suggesting that many in this top category in China have been leaving the country.

China Central Television, the state broadcaster, highlights the outflow on a special page on its website, referring to “a startling increase in the number of Chinese nationals emigrating to other countries.” That’s evident from any stroll around the streets of
New York, Vancouver, London, Paris, Sydney, Hong Kong, or San Francisco.

Third, it appears that, more than last year, China’s wealthy are buying luxe goods abroad. Why? For one thing, foreign travel is up. Chinese outbound travelers hit 54.1 million in the first half of this year, an increase of 18.7% over 2013. For the entire year, the number of person-trips is expected to increase 18.2%, and spending is estimated to jump 20% to $155 billion.

And now the China-foreign gap in prices for luxury items is so large that some foreign travel is made for shopping. Ann Hu, an executive in Shanghai, bought a Loewe handbag in Milan in July for the equivalent of 8,000 yuan, about half of the price in China. “The price difference between Europe and the mainland can pay for a round-trip ticket for me to Paris or Milan,” she said to Businessweek. “If I could do that and holiday for a few days there, why wouldn’t I?”

In 2013, 67% of luxury products bought by Chinese citizens were acquired outside the People’s Republic. To capture sales that would otherwise be made in foreign stores, the brands are heading to Tmall.

The brands also need Alibaba’s platform to give them more control over the merchandising of their products in China. In China, high-end sellers are cutting prices to clear shelves, but the really good bargains are online, where discounters, like Xiu.com, have grabbed sales by offering deep discounts, sometimes on the order of 40%. Industry analyst Chen Li, speaking to Want China Times, reports price cuts of 50%. The Glamour Sales China website has four million Chinese members and sells off-season goods from, among others, Fendi and Dolce & Gabbana.

Whether the brands like it or not, discounters will force them to go online and lower prices. So the industry will probably have to follow Burberry, which is so committed to Tmall and its own site that it is opening a warehouse to service online sales in China.

Not every carriage-trade retailer sees the light. Max Mara is going the other way, inaugurating its largest Asian store in Beijing and looking to set up 25 to 35 new locations in China each year. It’s unlikely the Italian fashion house will carry through on those plans, however. Its competitors have already gone that route and are now shutting down marginal Chinese locations.

“We are very, very confident about the Chinese market,” said Hermes chief executive Axel Dumas while inaugurating a store in Shanghai in September. That’s a very, very debatable call given the country’s severe economic challenges, but in any event the growth in the luxury trade will be online, whether on Tmall, the brands’ own sites, or the sites of discounters like Xue.

After all, cheap is now fashionable in China.


Learn more in our Global Ready China Seminars


Sources:

Article: Forbes

In April, Burberry set up a Tmall shop, the first time an international luxury brand began selling on Alibaba’s business-to-consumer site. In August, Calvin Klein followed suit. Hugo Boss’s Boss Orange line also joined Tmall. “Digital could be ‘the next China’ for the luxury industry” writes Businessweek’s Andrew Roberts. That’s because China is on the verge of no longer being “China.” Just ask Prada. In its first half, net sales in Greater China were down 2% year-on-year, and Richemont, the world’s largest jewelry company with the Cartier, Piaget, and Baume & Mercier brands, reported that China sales for the first half, which ended September 30, were off 4%. Bain & Co. thinks there will be a 2% drop in overall China luxury sales this year, the first fall in more than a decade. Earlier, Bain saw a 2% increase. Many attribute the sales turnaround to the so-called anti-corruption campaign of Chinese leader Xi Jinping. That explanation largely falls flat because Xi’s campaign, more a political purge than anything else, was in full swing last year. There are three other explanations for the decline in China luxe spending. First, the Chinese economy is in much worse shape than it was last year, and the wealthy have been hit disproportionally hard, especially by the accelerating decline in home values. Second, emigration from China appears to be picking up this year. In September, Barclays released a survey showing that a stunning 47% of the country’s rich—those with at least $1.5 million in net assets—plans to leave China within five years. Moreover, another 20% said they did not know whether they would stay. The country in second place, Qatar, was far behind China, at 36%. These stunning numbers for China are generally in line with other surveys—some conducted by state banks—and with a UBS report, released last month, showing the number of Chinese citizens with at least $30 million in net assets has been growing more slowly than the Asian and global averages, suggesting that many in this top category in China have been leaving the country. China Central Television, the state broadcaster, highlights the outflow on a special page on its website, referring to “a startling increase in the number of Chinese nationals emigrating to other countries.” That’s evident from any stroll around the streets of New York, Vancouver, London, Paris, Sydney, Hong Kong, or San Francisco. Third, it appears that, more than last year, China’s wealthy are buying luxe goods abroad. Why? For one thing, foreign travel is up. Chinese outbound travelers hit 54.1 million in the first half of this year, an increase of 18.7% over 2013. For the entire year, the number of person-trips is expected to increase 18.2%, and spending is estimated to jump 20% to $155 billion. And now the China-foreign gap in prices for luxury items is so large that some foreign travel is made for shopping. Ann Hu, an executive in Shanghai, bought a Loewe handbag in Milan in July for the equivalent of 8,000 yuan,…

Readers' Rating

How did you like this article? Would you like to read more content like this? Tell us your opinion: by rating this article you help us select the most relevant content for you in the future. Thank you for pointing us in the right direction.

User Rating: Be the first one !
0

Tags : ,

About

Stefan

Stefan (from Austria, Europe) has been living, studying and working in China since 2010. Stefan has worked on several research, publication and consulting projects focusing on the China Travel Market. He holds three Masters degrees and is an expert on China Outbound Tourism, Marketing and Social Media in China. Stefan works with BMG on the Global Ready China Seminars as well as the Global Ready China News and related projects. He also has teaching engagements in the areas of eMarketing and Tourism Strategy.

Leave a Reply

Your email address will not be published. Required fields are marked *