China Headlines: Chinese shoppers bag Chanel bargains

Shoppers came in droves to Chanel stores in Beijing this week to grab a bargain after the luxury brand announced price cuts across China.

Fashionists were shoulder to shoulder in Chanel stores in Shanghai while other luxury fashion stores nearby stood almost empty. The store at TaiKoo Hui mall in Guangzhou had to close its doors for a while to limit the press of shoppers.

The fashion house announced on Tuesday that it would cut prices in China while raising them in Europe in an attempt to reduce price differentials between countries, counter the decline of the euro and discourage customers from buying fakes.

Before the adjustments, a Chanel handbag could be 40 percent more expensive in China than in France. The big price difference encouraged China's newly empowered middle class to go on shopping sprees in France, the heartland of the world luxury industry.

The price cuts started with Chanel's three best-known handbags, - the 2.55, 11.12 and the Boy Chanel purse - which only cost 5 percent more in China than in France since the realignment.

A 2.55 handbag is now available for about 32,000 yuan (5,200 U.S. dollars), down from 42,000 yuan.

China is the third largest overseas market for the brand after the United States and Japan, but scalpers, who shuttle between the Chinese mainland and Europe, will soon find very little profit in the gray market.

Similar price cuts will slice through the whole Chanel range by the end of this year.

GO FAR, SHOP HARD

According to a Fortune Character Institute report on the Chinese luxury industry in 2014, 46 percent of the world's luxury goods were consumed by Chinese people, but 76 percent of the spending took place abroad.

"This is really frustrating for luxury brands that have been in China for a decade and splurged out on fancy new stores," said Zhou Ting, president of the Fortune Character Institute, adding that "many stores are already reduced to mere show rooms."

Although Chinese shoppers are the major force behind luxury consumption, the marketplace is not in China, which is not good for the development of the industry, Zhou said. In the long run, the price cuts will boost the value of the brand globally.

"Chanel's idea is to bring those Chinese consumers back from overseas through the most effective method: dropping prices," she said.

FEWER LUXURIES FROM OFFICIALS

Zhou believes the price cuts are in part due to the ongoing anti-corruption campaign in China.

Gao, an official in north China's Shanxi Province, has noticed his colleagues dressing differently since the broom of austerity swept through the government two years ago.

"Flashy logos on bags are no longer seen in our offices. Few people wear designer brands at work," he says, somewhat embarrassed by his own watch, a conference souvenir.

Sociologist Guo Xinping of Shanxi University believes that a broad drop in luxury sales was inevitable when the frugality campaign started in December 2012. Extravagance among officials has since been contained somewhat.

Sales of jewelry, haut-couture and other luxury goods fell one percent last year, the first drop in eight years, according to Bain&Co. Sales of men's wrist watches were down 13 percent, men's fashion by 10 percent.

A sales clerk at a Beijing Chanel boutique said prices of almost all Chanel wrist watches will drop 10 to 20 percent in her store.

"The anti-corruption drive will certainly deter people from spending money that is not theirs on luxuries," said the saleswoman.

LOW PRICES ARE THE NEW NORMAL

Shoppers are braced for more special discounts, and lower prices will gradually become the new normal, Zhou said, adding that Chanel has announced its price cuts at just the right time, with more luxury brands to follow suit.

Prices of TAG Heuer watches will soon be cut to balance the recent jump in the Swiss franc. Prices will drop about eight percent in Switzerland, China, the United States, among other regions, and 13 percent in Hong Kong. Patek Philippe has already made similar moves.

Zhou said tariffs are not solely to blame for exorbitant prices. Producers set and control prices and formulate different price regimes in different regions. The Chinese market was once considered by some luxury producers as a "primary, immature market" full of opaque pricing mechanisms and immature consumption, so prices in China were set much higher than in developed economies.

This immaturity is reflected in the pursuit of luxury goods for the sake of "face". The amount spent on luxuries may take up a large portion of one's income, and people can be spotted carrying LV or other luxury brand bags (genuine or fake) riding the crowded subway.

A 25-year-old office worker from Shanghai was detained by police this week for exchanging fake handbags for genuine ones via an online shopping site. The graduate of Tongji University has bought handbags and shoes of brands such as Dior, PRADA and Tod's at JD.com since May 2013. She returned them shortly afterwards but used fakes or look-alikes bought from Taobao.com. She did this 20 times, causing JD.com to lose more than 190,000 yuan.

Despite the price cuts, members of the Chinese nouveau riche still prefer to make their purchases overseas.

"Prices are still not as low as in Europe or Hong Kong, even after price cuts," said Shan Shan who works in a Beijing luxury store.

"The buying environment is also very important, and should be comfortable and pleasant," she said, adding that further price cuts will mean more crowded domestic luxury boutiques.

"It makes me want to quit," she said. Endit