SHANGHAI — Though it might not be the right move for every luxury brand, Chinese consumers and China-based analysts agree that Chanel’s worldwide price realignment, which went into force Wednesday, is a positive one.
This story first appeared in the April 9, 2015 issue of WWD. Subscribe Today.
Some boutiques in China had already begun lowering prices for three of its most iconic handbags in advance of Wednesday’s price harmonization deadline. An 11.12 model, previously priced at 3,550 euros in Europe, will now cost 4,260 euros, while the same bag in China, previously 38,200 yuan, has dropped to about 30,000 yuan.
Meanwhile, the price of a Boy bag will rise to 3,720 euros from 3,100 euros in Europe, and fall from 32,700 yuan to about 26,000 yuan.
Shoppers at Shanghai’s high-end Plaza 66 mall, which houses boutiques from brands including Chanel, Céline, Dior and many more international luxury brands, universally welcomed the move.
“I love Chanel,” said office worker Tessa Feng, 32, out shopping with her husband and toting a 2.55 Classic flap bag from the French house. “I think many more people will buy Chanel products in China and not wait until they or their friends travel if the price is only 5 percent different or so.”
Some consumers expressed concern for how European customers would handle the price adjustment, given they will have to pay about 20 percent more for a selection of products.
“This is great for Chinese, we are laughing, but the French people must be so angry. Chanel is a French company and they are raising the prices in France. Chinese customers would definitely be unhappy if a Chinese brand did this,” said Shanghai-based schoolteacher Zengdong Yang.
Others who welcomed the move from Chanel didn’t expect more brands to rush into a similar pricing strategy, given the potential for devaluing a label’s reputation if it was sold at a lower price point. “It’s not a wise choice, I think, as Chinese customers are used to buying high-price goods as ‘luxury products’ they believe are real, compared to other cheap ones,” executive assistant Joanna You, 24, said.
Smith Street Solutions consumer and retail director James Button agreed that it was the kind of move a high-profile, exclusive first mover such as Chanel could benefit from, but not every luxury brand. Chanel customers aren’t necessarily as price-driven as those shopping for other brands, he pointed out, and many firms are benefiting equally from having Chinese consumers spend in overseas stores rather than at home, meaning a price adjustment wouldn’t necessarily impact on the company’s bottom line.
“Chanel is in a position where they can do this because they set the bar. It’s not as clear-cut for other brands. It’s going to depend on how they view their China retail network and what their strategy is,” Button said. “You have this phenomenon where some brands are using their China stores as a showroom, so you have to work out whether it’s worth trying to shift that spend back to China, in which case a pricing adjustment may make a lot of sense, or if their consumers will continue to shop overseas anyway and China is going to remain a showroom, that involves a different retail strategy.”
On the other hand, Michael Zakkour, a principal at Tompkins International and coauthor of the book “China’s Super Consumers,” thinks every brand should seriously consider bringing their mainland China pricing into line with prices elsewhere. “Chinese luxury buyers now have a great incentive to buy Chanel close to home. Chanel understands that consumers love and engage with its brand and acknowledges a more globalized marketplace where borderless e-commerce and increased travel mean that brands have to integrate their operations across continents and no longer treat them as completely separate entities,” he said. “In fact, I have been guiding my luxury and premium brand clients on this strategy for over two years. It’s a must move for many brands.”
In any case, analysts believe Chanel’s price realignment will foil the resale, or “dai gou” market in China, which is fueled by agents purchasing goods overseas and reselling them to Mainland consumers.
“Dai gou agents only exist as long as the price discrepancies justify their trips abroad. Some luxury bags can cost up to 80 percent more in Beijing than Paris, making this parallel industry an enticing one. Once consumers can buy at home without the huge variance, the need for dai gou agents will decrease,” said Angelito Tan, cofounder of RTG Consulting.
But Button pointed out that, though dai gou sales would be severely curtailed by lower prices on the Mainland, this may not have a direct one-to-one correlation with sales in mainland China boutiques.
“In terms of what this means in China sales, there will be an increase, but it may not be as much as Chanel is expecting,” he said.
“The dai gou is being forced out, but the consumer still may not be able to afford the full price, so that shopper may switch to a VIP shop or online discount sales site, but is not necessarily going to be shopping in a Chanel store.”