In China, The Devil Now Wears Zara

on June 15 2015 | in Daily Headlines Trending | by | with No Comments

Prada had 33 stores in China in the first quarter of this year, down from 49 in 2014. Armani locations fell from 49 to 44. There are 11 Chanel boutiques in the country, about half the number before.

“Western luxury retail in China is fading fast, and I predict a lot more luxury shops will have to close,” said Sir David Tang to the Financial Times this month. “There will be a lot more pain to come in the next two or three years.”

Not everyone agrees with Sir David. Carlby Xie of Colliers China believes lux brands will not close down China locations.

Even though David Tang has reason to run down the competition—he was the driving force behind Shanghai Tang after all—his predictions look much closer to the mark than Xie’s. There is no doubt that across China luxury brands are in retreat.

It’s not that the Chinese don’t crave lux items—they may account for 46% of the world’s spending on them—but they make about 76% of their lux purchases outside their country. As the official Xinhua News Agency reports, “designer stores in China have come to serve as mere showrooms.”

In the future, luxury locations in second- and third-tier cities will be shuttered. Brands, however, will keep their flagship stores in Beijing and Shanghai so that the wealthy can figure out what they will buy when they go abroad to shop.

At home, high prices, due in large measure to tariffs, and Xi Jinping’s “anti-corruption” campaign, in reality a political purge, have discouraged lux purchases. Last year, luxury sales in China fell 1%, the first decline in recent memory.

This year, the retreat could be even more pronounced. Luxury brands have begun offering discounts in China.

Eventually, lux spending in China will come back, but in the meantime China’s mall developers are still bringing high-end space onto the market as if needed today. In Shanghai, 55 shopping malls will open in the next three years. All told, in that period China will see malls with about 40 million square meters open their doors.

So who will take up all that space? In China, the Devil now wears Zara. Mall owners are looking to the “fast fashion” brands to rescue them, and it is not hard to see why. According to a report from Rebecca Tibbott of JLL Shanghai, H&M wants to open 80 stores in China this year, and Zara is planning on 60. Uniqlo is hoping for 100.

Read more at Forbes.

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