Why China Keeps Buying Despite Rising Price of Luxury Goods

on February 7 2012 | in Lifestyle Trends | by | with No Comments

The new year means new, higher prices for luxury brands across the board. Gucci raised the price of its bags by 10 percent globally. In November, the prices of leather products from Bottega Veneta were lifted for the second time in 2011. Prices were increased more than 30 percent in April. Chanel and Celine have also marked up their goods. But that’s not stopping Chinese consumers.

“I’ve noticed the prices of luxury products have risen gradually, but I still need to buy these famous brands to fill my wardrobe from time to time,” said Yu Shenghui, a businessman from Wenzhou, Zhejiang province, who spends at least 500,000 yuan on luxury goods purchases every year.

In China, the price adjustments are even helping to sell more units. Yuval Atsmon, a partner in McKinsey & Co’s Shanghai office said, “In China, this hasn’t so far slowed down consumers. In some cases when applied to classic or iconic goods, it has even given consumers the sense that those (products) appreciate in value and therefore buying them is a good investment.”

Chinese are also accepting price increases on luxury goods because of the inflation that the entire country is currently experiencing. At least some of the new prices can’t be helped.

“Like other luxury brands, we evaluate and alter the prices of our products regularly based on exchange rates and the costs of production and raw materials,” said an announcement from Chanel.

Sales of luxury goods in the country reached 212 billion yuan in 2010 and probably grew 25 to 30 percent in 2011, with new customers accounting for more than 60 percent of the purchases, according to a survey released last month by Bain & Co, an advisor to the global luxury goods industry.

Despite economic downturn, Chinese – who believe strongly in the dream of a life full of luxury – are projected to continue exerting their purchasing power.” Our view remains that the luxury market will continue to see strong growth, although considering the explosive growth of past years, it would be a little slower in comparison,” said Atsmon.

photo credit: keith bedford/bloomberg

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