Luxury Goods Collectively Fall Into Chinese Market

Expected to lead

Guided global price adjustment initiatives and the government's commitment to

Measures to bring consumption back to the mainland may stimulate domestic sales growth

know

The "demons" of the industry are still wearing Prada. Anyway, this old luxury magnate has handed in a declining report card in 2015.

Negative growth into a luxury industry normal

Prada, a luxury giant in Italy, has been trapped in the continuously weak China market for two consecutive years.

Prada recently released its full report in fiscal 2015. As of the end of January, the group's net profit was 330 million euros, down 26.6% from a year ago.

Although it has narrowed slightly compared with the 28.2% decline in fiscal year 2014, the net profit of group 2015 in fiscal year has dropped back to five years ago.

Sales revenue was 3 billion 548 million euros, down 0.1% from last year, and 7.7% by fixed exchange rate.

The Asia Pacific market (excluding Japan) produced a net sales of 1 billion 80 million euros, down 4.4% compared to the same period last year. If it was calculated at a fixed exchange rate, it would drop by 16.1%.

In fiscal year 2014, the decrease was 3.1%.

Similar to previous explanations, the Prada group's sales slump is blamed on the deterioration of the Asia Pacific market dominated by greater China.

As the group's most valued market, in the last fiscal year, the Greater China region's annual revenue dropped by 22% to 705 million 800 thousand euros, accounting for 19.9% of the group's revenue. The group said that China's economic situation this year is still unfavourable.

Some analysts believe that sales growth in Japan and Europe (excluding Italy) has led to a decline of Prada net profit by less than 27%.

Last year, the European market benefited from the consumption of tourists represented by Chinese tourists. The annual revenue increased by 5% at fixed exchange rates. The annual income of the Japanese market increased by 4% at fixed exchange rates, and the euro increased by 11%.

Prada has been at a disadvantage for a long time. Last year, the brand had saved itself by closing stores and adjusting prices.

Although the group said that the mainland market will improve at the end of the year, analysts believe that Prada must "reshape the brand" to see the hope of recovery.

Luxury brands that share the same fate as Prada are not in the minority.

Burberry, a luxury goods giant and a British top fashion company, said its sales growth in the same quarter was only 1% in the third quarter, due to the low consumption of luxury goods in Hongkong and Macao, China.

In the third quarter of December 31, 2015, Boboli retail sales amounted to 603 million pounds ($870 million 900 thousand), an increase of 1% compared to the same period last year, and a decrease of 4%.

Thanks to the recession in the Greater China region and the stagnation of European market growth, Italy Giorgio Armani SpA only had 3.7% revenue growth in 2015, and its growth rate slowed sharply compared with 16% in 2014. The growth rate in 2015 was much slower than that in 2014.

In 2015, the George Armani group earned a total of 2 billion 640 million euros.

In the past few weeks, many luxury brands and chain corporation have released their current quarter reports. Despite the growth of a few brands, negative growth is the current norm in the luxury goods industry.

Luxury goods collectively fall into Chinese market

According to the reporter's observation, whether the brand of profit growth or the brand of declining profits, the Chinese market is their common "Waterloo".

The latest research report pointed out that in 2015, China's luxury goods market fell by about 2%, and the market size dropped to about 113 billion yuan. Sales of watches, men's clothing and bags were the main reasons for this trend.

North China and Northeast China are most seriously affected.

In 2015, luxury stores continued to decline in year-on-year sales and passenger traffic. New brands also encountered similar situations, which led to the closure of brand stores, the expansion of prudent store networks and more emphasis on maintenance and renovation of core stores.

The report points out that the trend of market slowdown is obvious. On the one hand, the follow-up effect of combating corruption and building a clean government has not yet ended. On the other hand, the economic slowdown and the stock market crash in the second quarter and the third quarter have had a huge impact.

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It is worth noting that the overall size of the purchase market declined in 2015s. According to Bain consulting, the size of the purchase market will be reduced to about 34 billion to 50 billion yuan in 2015s, and the figure is 55 billion to 75 billion yuan in 2014.

This is mainly due to the global price adjustment of major brands, which reduces the profits of purchasing agents and draws some consumers back to China.

In March 2015, Chanel's European price rise in Asia led to this wave of price adjustment.

Subsequently, Cartire and other brands have followed up the Chinese market price reduction.

According to a luxury brand executive, "although some brands claim that there is no plan for large-scale price adjustment, they are very low-key in adjusting the prices of some products - brands are very nervous about any possible negative effects."

In addition, the government has stepped up its control over purchasing agents to bring luxury consumption back to the mainland and incorporate GDP into the mainland.

Customs inspection of passengers and parcels is more stringent.

Since September 2015, customs inspection has been stepped up, especially travellers and parcels returned from popular shopping destinations, such as Japan and Hongkong, China, including more stringent inspection and supervision of professional purchasing.

In 2015, the government also actively promoted cross-border electricity providers to replace purchasing agents.

However, the newly implemented cross-border electricity supplier tax policy has brought some variables to the luxury Chinese market.

Hong Tao, a commercial analyst with GF Securities, pointed out that the price of high priced goods was not so strict in the original regulation. After the supervision is strict, the price difference must be paid.

In addition, luxury brands themselves are adjusting their spreads, so there is no room for arbitrage.

The Bain advisory report predicts that the leading brand led global price adjustment measures and the government's efforts to bring luxury goods back to the mainland may stimulate domestic sales growth.

However, Hong Tao also pointed out that there are many factors that affect the luxury market, including the impact of the economic situation, the impact of anti-corruption and so on. The change of single conditions may bring about a turn for the better, but it is hard to have a big reversal.

According to a report released by the media, the luxury industry will continue to slump in the 2016 fiscal year.