The taste of China’s luxury buyers is evolving, with big names like Louis Vuitton and Hermes losing favor but niche luxury brands still seeing great potential, experts said on Thursday. The core Chinese luxury buyers are fleeing from traditional luxury brands, which are failing to capture Chinese buyers’ hearts, said Zhou Ting, director of Fortune Character, a Shanghai-based luxury brand consulting firm.
“China’s luxury buyers now want more options,” Zhou told the Global Times on Thursday, noting that product quality, instead of brand, is playing a bigger role in people’s luxury purchasing decisions at present.
Also, many Chinese people used to buy luxury goods for gift-giving, but with the government’s anti-graft campaign, luxury purchases are now mostly for self-use, and so-called “light luxury” brands have begun to gain favor among Chinese buyers, said Zhu Mingxia, a professor at the University of International Business and Economics in Beijing who specializes in the luxury sector.
The traditional luxury brands are facing strong headwinds in China. Italian fashion house Prada Spa said that its Asia-Pacific sales in 2014 dropped 7 percent year-on-year at constant exchange rates, according to a statement sent to the Global Times on Monday. It also noted that the fall originated primarily in Hong Kong and Macao, where “market conditions deteriorated significantly during the second half of the year.”
In a press release on February 12, French fashion house Hermes said that sales of its watches segment dropped 11 percent on a yearly basis in 2014. “Watches remain penalized by the decline in the market, particularly in China,” it said.
For its overall performance in Asia (Japan excluded), Hermes reported a 13 percent year-on-year increase in sales, which the company said is “good performance in a context marked by recent events in Hong Kong and the slowdown in China’s luxury market.”
Some brands have been reducing their presence in China during the past year. Germany’s Hugo Boss shut seven shops in the mainland in 2014 and UK’s Burberry closed four, according to media reports. As the country’s overall economy enters into a new phase that features lower growth but with high quality, experts noted that the luxury market in China is not very likely to repeat the high double-digit growth seen back in 2010 and 2011.
In 2014, luxury consumption in the mainland market by Chinese consumers dropped 11 percent year-on-year to $25 billion, according to a report from Fortune Character in January. However, a notable fact is that luxury purchases made by Chinese consumers globally remain strong. Luxury purchases made by Chinese consumers in the global market rose 4 percent to $106 billion in 2014, accounting for 46 percent of the global luxury market, the report said. However, 76 percent of Chinese luxury consumption was made outside of the mainland.
“The more favorable visa policies from major tourist destinations like Japan and the US, as well as the strengthening yuan currency, also boosted Chinese people’s overseas purchases,” Zhu noted.
Many Chinese consumers prefer to buy luxury goods outside of the mainland, as it is much cheaper, and some experts have been suggesting lowering the consumption tax to luxury goods in order to bring the luxury purchases back to China.
“I bought a Burberry bag in London several days ago, and the price was nearly 6,000 yuan ($959.4) less than in domestic stores,” said Yang Li, a 30-year-old college teacher in Beijing who just came back from a trip to the UK on Thursday.
Zhou said that luxury brands still attach great importance to Chinese consumers, but instead of opening more stores in the mainland, they have begun to change their strategy and expand their presence in the favored travel destinations of Chinese tourists such as the US, South Korea and Japan.