Why are luxury brands not popular in China?
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Since the third quarter of fiscal year 2023, the major luxury groups and brands have sent a signal to the market that the three years of soaring performance have come to an end.

Now, the prophecy comes true. After several price increases, the sales of luxury goods that had been advancing with great enthusiasm have begun to bear pressure. The most intuitive is the first quarter data released recently, and the performance of some luxury brands has declined significantly.

Cold in China, sales plummeted

Recently, Burberry, a British luxury goods group, announced its performance in the 2024 fiscal year as of March 30, with its revenue falling 4% to 2.968 billion pounds, and its adjusted operating profit falling 34% to 418 million pounds. By region, the annual revenue of the Asian market fell 1% to £ 1286 million, while that of the American market fell 19% to £ 603 million. Burberry's performance in the Asia Pacific market continued to deteriorate. In the fourth fiscal quarter of 2023, the same store sales dropped by 17%, the mainland market dropped by 19%, the American market dropped by 12%, and the EMEIA market dropped by 3%. The group expects that the wholesale revenue will fall by about 25% in the first half of this year. Thanks to cost reduction, the performance in the second half of this year may improve.

Burberry is not the only company with weak performance. Tod's, an old Italian luxury goods group, was delisted from the Euronext in Milan. Before delisting, the company announced its performance for the first quarter as of March 31, 2024, and its revenue fell 6.7% to 252 million euros. By brand, the sales of the main brand Tod's fell 6.6% to € 121 million, Roger Vivier fell 23.2% to € 52.7 million, and Hogan increased 8.2% to € 61.5 million. By region, sales in Greater China fell by 24% to 67.3 million euros, and the Italian market fell by 0.6% to 59.6 million euros. The European market excluding the Italian market grew by 5.1% to 60.2 million euros, the American market grew by 19.6% to 20 million euros, and other markets fell by 5.8% to 45.2 million euros.

The hot Gucci in the past few years also began to show fatigue. In April this year, the parent company of Gucci, Kaiyun Group, released the report for the first quarter of 2024, and the sales fell by 11% year-on-year to 4.504 billion euros. Gucci's sales revenue fell by 21% year-on-year to 2.079 billion yuan. In addition, the sales performance of SAINT LAURENT, Bottega Veneta and other brands also declined to varying degrees. In the Asia Pacific region where the Chinese market is located, the sales of Gucci's main brand fell by 28% year-on-year in the latest fiscal quarter, making it the region with the largest decline. Kaiyun Group predicts that in the first half of 2024, its regular operating revenue will decline by 40% to 45%.

LVMH Group, the industry leader, was not spared. The Group's financial report for the first quarter of this year showed that the Group's sales fell 2% year-on-year to 20.7 billion euros. Among them, the revenue of the fashion and leather goods department where LOUIS VUITTON and DIOR are located fell 2% to 10.49 billion euros, the worst performance in recent two years. By region, the sales revenue of the Asian market (excluding Japan) fell by 6% year on year, and its contribution to the Group dropped from 36% to 33%.

Consumers began to consume rationally

According to the internal analysis of the industry, the performance of several companies fell sharply in the first quarter of this year, on the one hand, because of the decline in sales in some regions. For example, in China, the strong purchasing power of Chinese consumers has driven the performance of some brands to increase significantly in the past two years. However, this does not mean that Chinese consumers will stop buying. LVMH Group also mentioned in its report for the first quarter of this year that the decline in sales in the Asia Pacific market where China is located is mainly due to the recovery of offshore tourism.

LVMH said that due to the lifting of travel restrictions, the proportion of outbound consumption of Chinese consumers in the first quarter has returned significantly to 37%. According to the statistics of the Tourism Administration of the Japanese Government, the number of visitors from China to Japan in February 2024 is close to 460000, ranking the third among all the tourist destinations.

Due to such factors as exchange rate and tax rebate, the price of luxury handbags in the European market has always been a global "depression". However, due to the recent depreciation of the yen and the huge price difference caused by exchange rate fluctuations, European luxury prices have no obvious advantage over Japan. This also makes Japan temporarily replace Europe as the main shopping destination for Chinese luxury consumers. LVMH Group executives said in the latest financial report telephone conference that the group's sales in the Japanese market achieved double-digit growth, which was not only affected by the price increase in the context of currency depreciation, but also attributed to the contribution of Chinese tourists to Japan.

This is partly the reason. The decline in the performance of the aforementioned brands is also considered to be the maturity and "shrewdness" of Chinese consumers in their consumption choices.

Nowadays, brands such as Burberry, Tod's and Gucci have settled down in China's major Outlets. Consumers who need to "buy, buy, buy" often go to some Outlets and shopping villages to make a big purchase on holidays. This year's "May Day" holiday, the reporter saw that many big brand stores were crowded with consumers coming to shop in Qingpu Aolai. The shopping guide of an Italian brand told the reporter that the business of the holiday was usually very good. Because of the discount of the brand itself and the superimposed discount offered by Aolai, the discount of many products was 50% or more.

There are also netizens who share their results of shopping in Olai on social networking sites such as Xiaohongshu. A Burberry shirt and Ferragamo flat shoes are only 1000 yuan, which is much cheaper than the regular priced products in urban brand stores. "Since I just want to buy a logo, why not go to the more affordable Olaitao?" Some consumers said frankly on the Internet.

"As far as the Chinese market is concerned, mass consumers' pursuit of the ultimate cost performance ratio, a large number of lifestyle education and high market visibility have reduced the mystique of luxury brands, excessive price increases have led to some consumers fleeing, the proliferation of fake goods has impacted the market, and the purchase of too much inventory for digestion in the past few years, the rise of China's" advanced "products to seize the market are all The reason for the weakness of China's luxury market. The weakness is not caused by a single reason, nor by one day or two. " Dr. Zhou Ting, president of VIP Research Institute and an expert in the luxury industry, predicted that China's luxury market would recover in the second half of the year. However, the trend of multi polarization of brands is inevitable. The situation of luxury brands monopolizing the luxury market share will change step by step. High end niche brands, designer brands, China's non heritage cultural and creative brands, and high-end customized brands will gradually play a greater role.

  • People's Daily China Economic Weekly official website
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