Overseas purchases cutting into spending in domestic market
Five years ago, China was "a wonderland" for international fashion brands as wealthy Chinese splurged on products from the likes of Chanel, Louis Vuitton and Hermes. Over the last few years, however, domestic luxury demand plunged as the economy slowed. In 2015 especially, many overseas luxury product makers reported slowing sales in China. Experts noted that Chinese consumers still have a lot of money to spend, but they're spending more of it outside China.
Several luxury product makers have recently met with difficulties in China - once the land of plenty for purveyors of French leather, Italian shoes and Swiss watches. Over the last few years, however, the world's glamorous fashion brands have seen business slow in China as economic growth has decelerated and the Chinese central government's crackdown on corruption has taken a toll on lavish official spending.
The Beijing Business Today newspaper reported on Thursday that Hermes, once a much prized luxury brand in China, was struggling throughout much of Asia in 2015, particularly in China. Another brand Tesla also failed to meet its sales goals in China in 2015.
According to a report released by domestic luxury research institution Fortune Character Training (FC Training) in November, 83 percent of luxury brands have closed at least one store in China in 2015.
The report estimated that 95 percent of luxury brands will shut down more stores in China or make other changes to their retail businesses in 2016.
Zhou Ting, dean of the FC Training, said in the report that as Chinese consumers spend less on luxury goods, luxury brands will "decline fast" over the next three to five years.
With the exception of a few brands, most will become "high-end consumer goods" for Chinese customers, which means that they may need to lower their prices to cater to a broader groups of customers.
Slowing sales
Once hungrily pursued by Chinese consumers, many overseas fashion brands have started to lose their appeal in China, which has been burdened with downward economic pressure in recent years.
The French luxury product maker Hermes International SCA is one of them. Hermes, revered in China especially for its bags, has seen its business go downhill in China over the past year.
The company's overall global revenue grew 8.1 percent year-on-year to 4.81 billion euros ($5.36 billion) in 2015, according to its fourth quarter financial results.
Its revenues in the Asia-Pacific region, excluding Japan, grew 5.1 percent year-on-year in 2015, slowing remarkably from the 13.1 percent growth in 2014.
Another French luxury brand Louis Vuitton also met with slowing demand on the Chinese market. According to the Louis Vuitton's financial report released on February 4, the company's revenues grew 6 percent year-on-year to 30.6 billion euros in 2015, but its performance in China was sluggish.
A saleswoman surnamed Meng, who used to work at a Louis Vuitton store in Beijing, said that in 2010 the store would receive hundreds of customers per day. Sometimes, there weren't enough employees available to take care of everyone.
"Now, if the store has 30 people visiting each day, it is doing fine," she told the Global Times on Thursday.
Likewise, the US-based electric car maker Tesla, which has a high-end positioning in China, failed to meet its sales goals in the country in 2015.
Tesla sold 3,500 vehicles in China in 2015. The company had set a goal to sell 10,000 cars for the year, National Business Daily (NBD) reported on Thursday.
The NBD also said that Tesla has lowered its sales target for China in 2016 after failing to hit its goal in 2015.
But Meng noted that some brands have managed to weather the downturn in China.
"Cartier, for example, has been quite popular among Chinese customers over the past few years," she said.
Spending overseas
However, experts have pointed out that Chinese consumers still have a lot of spending power, especially when it comes to luxuries. One of the reasons for slowing sales in China is that more and more Chinese consumers are choosing to go abroad to buy luxuries.
According to FC Training, Chinese consumers spent about $116.8 billion on luxuries around the world in 2015, up 9 percent from 2014.
"That means Chinese customers bought about 46 percent of the luxury products in the world in 2015," the report said.
The report also showed that Chinese consumers spent about $91 billion on luxuries when they were abroad, up 12 percent compared with the previous year. The figures pointed to a serious situation of "consumption outflow," the report noted.
During the 2016 Spring Festival holidays, about 6 million Chinese people went on tours abroad, making it the hottest festival period for outbound tourism.
China accounted for 10 percent of the global luxury market in terms of sales volume, down slightly from the 11 percent in 2014.
The report also noted that luxury brands plan to retool their businesses in China over the next few years to boost sales.
Their measures include developing e-commerce platforms for luxury products, integrating more "Chinese elements" into their designs to cater to the appetite of Chinese customers, as well as reducing the costs of business in China by closing down more stores.
