Posted by: oliviapontet | June 27, 2012

Chinese tourism will boost the price of luxury in Europe

The slowdown in sales of luxury goods in mainland China, partially offset by purchases made in Europe by Chinese tourists will bring luxury brands to raise prices on the Old Continent to limit the impact on their turnover, business.

The wide gap between prices in China and Europe, mainly because of customs duties applied by Beijing, explains this shift from domestic consumption and tourism consumption, which could also affect the profitability of Louis Vuitton (LVMH), Gucci , Hermes and other Chanel (PPR), because their margins are higher in China than in Europe.

Without lower tariffs, lower prices in China seems excluded because the claws are careful not to degrade the value of their brands.

The parade is therefore to increase the prices in Europe.

“There will be a price adjustment in Europe, about 5%,” predicts analyst on condition of anonymity. “They can not go much further to not touch their European customers. Some do now, others expect the new collections.”

However, the largest increases up to 10% could affect some leading models of bags, he added.

Asked LVMH refused to comment while Gucci claimed he did not adjust its prices “simply based on a country, a product category or exchange parities.”

The price gap between China and Europe on luxury goods, which was already close to 35% last year, has now reached 50%, with the weakening of the euro against other currencies.

Taking into account the rebate enjoyed by foreign buyers in France, the gap even approaching 70%, according to estimates by the HSBC bank.

MADE TENAILLES

Already evident in 2011, the slowdown in sales in China has grown immensely in the first quarter due to increased prices with the European standard.

“The price differences between Europe and Asia can not be explained only by the different taxes. Profitability is higher in Asia because the margins are higher,” say analysts at CA Cheuvreux.

They point out that these transfers purchases should have a negative impact on operating income registered, impact should however be limited due to price increases implemented in Europe and they estimate that about 3%.

Some brands, however, may be more affected than others, including those in development accelerated its store network in China.

CA Cheuvreux and discusses the risk of Prada or Gucci, the flagship brand of PPR, caught between the deployment of their network and the decline in domestic consumption.

In 2011, he had them in four to six months for a new shop to reach breakeven in mainland China and almost two years for it to reach its full profitability.

If the globalization of purchases continues, these delays could significantly lengthen, they add.

DEADLINES EXTENDED

Analysts at Morgan Stanley believe also that “for Gucci, after an impressive performance allowed by repositioning operated for three years on the high end, there is a risk of slowdown and shrinking margins due to the ambitious program openings of brand stores. ”

After spectacular growth last year, often above 20%, analysts predict a slowdown in the dynamics of the luxury this year, due to compaction of the Chinese economy and the debt crisis in Europe. They anticipate average growth, at constant exchange rates, between 10% and 11% for 2012.

But so far, Hermes, LVMH, Prada, Burberry and PPR have once again exceeded expectations, with an average increase of nearly 15% in the first quarter.

Asian clients (excluding Japan) has become the largest consumer of luxury goods in a global market valued at approximately $ 250 billion.

In Europe, chinese tourists now account for about 20% of purchases of tax-free products, according to data from Global Blue, the global specialist in rebate.

France, Printemps Haussmann, repositioned on the high end, the Chinese have become the second customer of the store behind the Europeans. They account for 15% of sales with targeted purchases of leather goods, fine jewelry and fine watchmaking and an average basket of 1,500 euros.

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