Shoppers expect luxury goods to cost a lot of money, but should prices vary dramatically from country to country?
Some experts say no. “The profits [luxury brands] are making in the China market will scare you to death!” said Lu Xiaoming, former head of luxury label Montblanc’s China operations.
Customs duties and value-added tax fees aside, many luxury brands are benefitting from a mysterious mark-up in China.
There’s a reason that many Chinese shoppers like to go abroad to shop. A Chanel bag in Shanghai will set you back: it costs 45 percent more than in Hong Kong and 72 percent more than in Paris. A Burberry scarf sells for around $385 in London and about $720 on the Mainland. If taxes alone were increasing the price of the scarf, it would be hitting shelves for around $488 dollars.
Can the cost of logistics in China (historically pricey) be responsible for these price hikes, even when labor, materials, advertising, and manufacturing are all cheaper there than in most Western nations? Perhaps. But as Lu Xiaoming explained in a CCTV interview, and reported by South China Morning Post, “The pricing strategies adopted by these brands reflect that they have already determined that purchasing power [for luxury goods] will be higher here in this emerging market than Europe and the US.”
Lu believes that luxury brands will be unwilling to cut elevated prices in the future, despite a downturn in domestic luxury consumption. Marketers recognize that higher prices will drive some consumers overseas (still feed the company’s bottom line), but if there is a market willing to pay these prices, then why not.
photo credit: burberry