Chanel is well-known for never holding sales. One theory has it that the luxury fashion brand would rather burn out-of-season stock than sell it at a discount, although the privately-held firm has never explained how it handles unsold inventory.
So imagine the surprise when the fashion house announced that it is cutting prices in Asia. Why? A weakening euro has widened the gap between the prices of items sold in China and Europe to an all-time high, with some luxury goods costing as much as 70% more in China.
Prior to the move, Chanel had raised prices by 15% over the past five years, says Beijing Youth Daily. But it now says it will lower the Chinese prices of certain products by as much as 27%, a move that quickly prompted queues of shoppers at its stores across mainland China and in Hong Kong and Macau.
“You can’t even imagine when I walked by the Chanel store at Hang Lung’s Plaza 66 [in Shanghai]. The line was so long I thought I was in the middle of a wet market,” one shopper told National Business Daily.
Andy Gao, store supervisor of the Chanel boutique in the Peninsula Hotel in Beijing, told the South China Morning Post that his supply of the brand’s most popular mid-sized handbag (called the 2.55) had gone by last Thursday morning. He had never seen anything like it in his three years at the store.
In addition to the price adjustment, Chanel says it will start standardising prices on three of its best-known handbags. “This decision will enable us to offer our products to all our clients at a harmonised price wherever they are in the world,” it announced.
The firm said the strategy, which includes a 20% price increase on its bags in Europe, will also help it to combat “parallel resell markets that are facilitated by price differences and hurt the business”.
Prior to the price adjustment, a Chanel Boy bag – one of its most classic designs – cost Rmb35,600 ($5,740) in China. After the change, the same bag costs Rmb26,000. Meanwhile, the bag purchased in Europe will now cost Rmb24,600 due to a price increase. So all in all, the price gap between China and Europe has narrowed significantly.
One reason that Chanel and other luxury companies got away with charging more in China than elsewhere was because of the gift-giving culture. “In China, there is a belief that the more expensive the gift, the more sincere you are. So luxury goods sales have thrived under this logic. Moreover, since most end users of the luxury products don’t actually pay for the goods themselves their price sensitivity is very low. For some of them, buying luxury goods is like buying pork in the supermarket,” comments Beijing Youth Daily.
But with China’s anti-corruption campaign showing no sign of slowing down, luxury firms must now think of new ways to resuscitate their sales. “Last year over 76% of Chinese people bought luxury goods overseas, so most luxury stores in China suffered from poor sales, serving mainly as a display room. But as the economic conditions in China continue to worsen, it forces luxury brands to rethink their pricing systems. The rapid development of e-commerce has also made price comparisons much easier so luxury brands realise they can’t get away with it anymore,” says Ji Wenhong, chief executive of Xiu.com, an e-commerce site that focuses on luxury goods.
Industry observers say they expect more luxury brands to follow Chanel. “In fact, a lot of big brands in Beijing and Shanghai have been covertly offering discounts,” Zhou Ting from Fortune Character told Southern Metropolis Daily. “Even Hermès recently conducted a private sale at 50% off. It’s just that Chanel is more public about its discounts.”
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.