Snatching up bargains in Europe might be a thing of the past for Chinese luxury travelers if the major labels get their way. LVMH Moet Hennessy Louis Vuitton SA and several other luxury brands are planning to raise prices in Europe as a way to make up lost profit in China.
“The combination of the two is unfortunate because what you’ll find is higher prices and at the same time lower disposable income for domestic European customers,” said Luca Solca, global head of European equities at CA Cheuvreux. He explains, “What we expect luxury companies to have to do is progressively close the pricing gap and, more likely than not, this is going to come from stepping up prices outside of Asia. You cannot continue to sustain the existing price gaps that have been a mainstay of the luxury goods industry for the past 20 or 25 years.”
Chinese tourists flocking to Europe in the past have taken advantage of savings as high as 50 percent by traveling abroad. But with Louis Vuitton’s price differential between China and France reaching as much as 47 percent in the first quarter, something’s got to give to keep Chinese consumers from shopping abroad. “This will continue to be a feature of the industry this year unless the group rebalances pricing to discourage parallel imports,” said Barclays Capital analyst Julian Easthope.
LVMH and its competitors would need to raise prices by 3 percent outside of China to compensate for about 15 percent of mainland Chinese customers buying their products abroad, Solca said. And LVMH is not alone in rethinking its pricing structure.
Burberry Group Plc, the U.K.’s largest luxury goods maker, is experiencing similar problems. “It’s the global traveling luxury consumer that is dominating,” said Burberry Chief Financial Officer Stacey Cartwright.”
Chinese global tax-free spending grew 79 percent in March from a year earlier, the fastest increase of any nation, making them the world’s biggest tax-free spenders with 21 percent of the total, according to tourist shopping specialist Global Blue. The products they splurge on the most in Europe are watches, jewelry and fashion, said Manelik Sfez, head of global corporate and partner marketing at Global Blue in Nyon, Switzerland.
“By no means do we feel that this is a permanent move,” LVMH Finance Director Jean-Jacques Guiony said. “Overall, no reason to be pessimistic, but at the same time, keeping flexibility and agility are the two key words in any uncertain environment.”
photo credit: lv