International luxury brands are cutting prices in China to counter Chinese consumers' overseas shopping habits.
Gucci halved the price of many of its products on Wednesday, following a 20-percent cut by Chanel in March. There are rumors that more brands such as Bottega Veneta, Ferragamo and Prada will follow suit.
Luxury goods producers have different price regimes for different regions and the Chinese market has been considered a "primary, immature market" with opaque pricing mechanisms and immature consumption.
There have been longstanding complaints about the exorbitant prices of luxury goods in China compared to developed economies, with the price difference sometimes as large as 70 percent.
The huge price gap has sent price-sensitive Chinese consumers on overseas shopping sprees, with European countries their latest playground thanks to a sharply weaker euro. Goods resellers have been busy shuttling between China and Europe for commissions.
According to a Fortune Character Institute report on the Chinese luxury industry in 2014, Chinese people consumed 46 percent of the world's luxury goods, a value of $106 billion, but 76 percent of the spending took place abroad. As a result, designer stores in China have come to serve as mere showrooms.
At the same time, China's luxury market shrunk for the first time in 2014, down 1 percent from a year earlier, according to a report by Bain and Company.
Statistics from RET Property, one of China's largest commercial real-estate service providers, showed that the number of Prada stores in China fell to 33 in the first quarter of this year from 49 last year. Armani went from 49 to 44, while Chanel boutiques were halved to 11.
The price cuts at Gucci and Chanel seem to have been effective, as long queues were seen outside stores and doors were temporarily shut to avoid customer overflow.
Sales driven by price cuts not only benefit luxury goods makers in the long run, as they give the local market a chance to grow, but also are welcomed by the Chinese government, which wants to stimulate domestic consumption.
China's economy eased to 7 percent in the first quarter of the year from 7.3 percent the previous quarter. Retail sales in April grew 10 percent year on year, lower than the 10.2 percent seen in March.
The Ministry of Finance (MOF) announced on Monday that starting from June 1, import duties on consumer goods will be reduced by an average of 50 percent. The duty on cosmetics will be reduced to 2 percent from the current 5 percent.
During a press conference jointly held by the MOF, the Ministry of Commerce and the General Administration of Customs on Friday, authorities said more duty-free shops with a richer variety of foreign products will be opened in China.
