French cosmetics giant L’Oréal SA says it will cut prices of products imported into China to increase sales, following up on Beijing’s move to lower duties on some goods, while aiming to deter a flourishing gray market.
L’Oréal’s China division said in a statement that the company will cut the “price of most of our imported products” to encourage Chinese shoppers to buy more. The custom duty reduction will have a “very limited impact” on the retail price so L’Oréal is reducing prices further, the statement said. It didn’t provide details on products or pricing.
A L’Oréal representative didn’t respond to requests for additional information on the price cuts.
China’s Ministry of Finance announced Monday that it will cut duties by half, on average, on imports including suits, fur garments and shoes beginning June 1. A tariff on cosmetics will fall to 2% from 5%, while a duty on disposable diapers will decline to 2% from 7.5%, according to the ministry.
L’Oréal’s move is part of a larger trend for companies—particularly those in luxury goods—to tighten global pricing strategies in an effort to stamp out a gray market taking advantage of international price differences. French luxury fashion house Chanel announced in March that it would increase its prices in Europe on some handbags and slash some in Asia to eliminate a price gap. It cut some handbag prices in China by 21%, lowering price tags also in Russia, Vietnam and Hong Kong, while U.S. prices remained stable.
China’s yuan has strengthened against the euro and many other currencies and has made shopping abroad even more appealing. The country’s rising number of travelers spent about $165 billion overseas in 2014, up 28% from 2013, according to the State Administration of Foreign Exchange.
But not all shopping has been for personal consumption. The deals in other countries on high-end handbags and lipstick have created a gray market of product resellers, enabling Chinese to buy cheaper goods through overseas dealers or through individuals online. Overseas personal shoppers who send back such goods to Chinese consumers accounted for as much as 65% of the 115 billion yuan ($18.5 billion) in sales of luxury goods in 2014, according to consultancy Bain & Co.
Gray market sellers have used sites like Alibaba Group Holding’s Taobao site, similar to eBay. Consultants say brands don’t like that because it takes their products, and the retail experience, out of their control.
Read more at The Wall Street Journal.