Luxury brand Chanel has revealed future plans for an e-commerce platform. It could begin operations as early as the fourth-quarter of 2016. This comes just one week after the French company announced global price reductions, which are very welcome in China.
Chanel announced that it will reduce prices of some products in China in order to narrow regional price differentials, which it says have widened considerably due to the recent depreciation of the euro. [graphics is suggested here] For example, one Boy Chanel handbag cost around 32,700 yuan before the re-pricing, and now costs only 26,000 yuan. Some Chanel outlets in Shanghai already lowered their prices last week, attracting long lines of happy shoppers. In its official statement, Chanel explained what caused the price differentials in the first place.
"These differentials, which exist for all exporting brands, are caused by exchange rate fluctuations and the methodology used to set prices, which include taxes, import duty and transport costs, and the economic environment, all of which are specific to each country," voice from Chanel official statement.
The prices in China came down an average of twenty percent. One industry analyst says the big price gaps indicated that import tariffs were not the main reason for China's previously high prices. She says the main reason is the way luxury brands set their prices in different markets.
"In a closed market or an emerging market, luxury brands will deliberately raise their prices, and one interesting phenomenon with luxury brands in these markets is that the more you charge, the more buyers you get," said Tina Zhou, deputy chaiperson of Fortune Character Group.
And so the price gap for Boy Chanel handbags between China and Europe was once 12,000 yuan, almost one third of the China sales price. Recently, however, more and more Chinese citizens have flooded foreign tourist markets to buy luxury products at cheaper prices. Research institution Fortune Character says Chinese customers bought 47 percent of world's total luxury products in 2014, but that 76 percent of the purchases took place outside of China. Zhou says that for luxury brands that's a very unhealthy way to do business.
"First-tier luxury brands entered China more than ten years ago, with lots of outlets and a full operations team. If their stores in China continue to have low sales, and there is nothing but ad and showcase for these brands, it will unbalance their global sales system. And in emerging markets like China, profit margins are much higher than Europe. So even though overall sales are on the rise, the profit rate is in fact going down," Zhou said.
Chanel has simultaneously increased its prices in Europe, and the price differential for three of its classic handbags between the two regions is now only about 2,000 yuan. Zhou says another reason for Chanel to narrow the regional price differences is to prepare for online sales channels which require unified pricing. Following Chanel's move, other luxury brands including Prada and Dior have begun similar price adjustments in China as well.
