|Price is no Problem if the Label is Right|
Many luxury brands have made their annual price adjustments for certain products, with increases of more than 10 percent since November, but that hasn't dented Chinese customers' taste for up market items.
The price hikes for bags and cosmetics began before the annual sale period for Christmas in December, led by well-known brands such as Chanel, Gucci, Celine and Bottega Veneta.
The price on a bag made by Celine known as the "IT bag" went up in the middle of November in Europe, America and the Asia-Pacific region. In China, the price went to 17,500 Yuan ($2,770) from 16,000 Yuan.
Gucci also raised the prices of its bags by about 10 percent.
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.
At the end of last year, Chanel wrapped up its annual price adjustments on classic bags and cosmetics, with increases of up to 10 percent globally.
"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.
The announcement also noted that limited supplies of top-grade leather, used in all Chanel bags, directly affected the prices of the products.
Tiffany, the well-known jewelry brand, declined to comment on price changes. The company said that it had changed the prices of certain products to reflect a maturing market.
"Luxury brands have been increasing prices simultaneously worldwide around Christmas in the past few years, driven by an obvious increase in some raw materials," said Yuval Atsmon, a partner in McKinsey & Co's Shanghai office.
However, said Atsmon, "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."
For wealthy consumers in China, annual price adjustments for luxury goods won't do much to affect demand.
"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.
Yu added that annual increases in the prices of luxury goods are acceptable, because most daily necessities are also becoming more expensive due to inflation in China.
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.
"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.
He added that the increase in the number of wealthy people, as well as an expansion of the upper middle class, will fuel the growth of the luxury market. Much of the growth would come from new consumers, he said, with some help from the increased wealth of current buyers.
Li Qingxing, secretary-general of the China Luxury Industry Association, suggested that luxury consumers in China are still not sophisticated enough to make their own brand choices and thus turn to luxury brands.
"A variety of luxury brands have expanded their network in China to attract more potential customers as more Chinese people get wealthier and recognize luxury goods as a status symbol," said Li.
He added that as long as Chinese consumers chase the dream of a life filled with luxury, higher prices wouldn't stop them from shopping.
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on January 30, 2012