NEW YORK—While the anti-corruption campaign in China has been blamed for stalling luxury brands’ expansion plans, the political climate is not entirely to blame.
The anti-corruption campaign has driven Chinese luxury consumers to buy less, or to choose less conspicuous options, but China’s luxury market has also been getting tighter as greater numbers of foreign brands enter the market.
Internationally, Chinese make about 30 percent of all luxury purchases, and three-quarters of their purchases are made outside of China, including in Europe, United States, South Korea, Hong Kong, and Japan. Chinese consumers are becoming more international, traveling more each year, and as a result are increasingly aware of global brand hierarchies.
“This consumer is becoming increasingly sophisticated,” said Brian Buchwald, CEO of Bomoda, a consumer intelligence company specializing in luxury brands in China.
“Whereas before they were buying the logo for the logo’s sake, now they want to know the providence, now they want to know the details on how it was manufactured … the quality of the leather … what the stitching is. These are things that didn’t really matter to the consumer in the past.”
Brands that fail to prove to Chinese why they should buy their products will lose to their competitors, or to other discretionary spending options, such as vacations and plastic surgery.
“Brands that have had trouble creatively, or have had trouble with their international sales, and with their international reputation are now seeing problems in China as well,” he said. “The Chinese consumer is still not really buying from a design purpose, I think they are buying from an international prestige focus.”
Prada is one of many companies seeing sales decline this year. In a statement released Friday, the Milan-based company said its performance in the Asia-Pacific had been affected “mainly by the market conditions in Greater China, especially in Hong Kong and Macau, where the decline in Chinese tourist numbers, already seen in the second half of 2014, shows no signs of abating.”
Notably, Prada’s net income for the first quarter 2015 fell to 58.7 million euros ($65.9 million), from 105.3 million euros one year earlier. While the groups’ total sales were higher in early 2015, sales in greater China (mainland China, the two special administrative regions of Hong Kong and Macau, and Taiwan) dropped from 199.6 million euros in the first quarter 2015 to 191.4 million euros in the same period the previous year. Prada indicated that sales of leather handbags in Asia-Pacific had been particularly impacted.
Gucci, owned by the Kering Group, saw its comparable luxury retail sales drop 10 percent in Asia-Pacific during quarter one compared to the same period the previous year. Specifically, the drop was for Gucci’s preexisting stores in Asia-Pacific—with the exception of Australia and South Korea.
At the same time, sales in Western Europe were up 6 percent, with no change in North America.