SHANGHAI — Tackling the global pricing debate is critical for the future of luxury retailers and brands in mainland China.
That’s the view of Andrew Keith, chief executive officer and president of Lane Crawford, who said pricing is “the most relevant and live discussion we are having at the moment,” when asked how the company intends to handle the influx of lower-priced goods into China.
Luxury retailers operating on the Mainland face mounting pressure from outside as more and more Chinese shoppers travel abroad to buy their luxury products. Inside China, government tariffs on luxury imports can inflate prices by as much as 60 percent.
A study by Bain & Co. last year revealed that 70 percent of luxury brands bought by Chinese shoppers are purchased abroad or through daigou agencies — overseas personal shoppers who buy and send luxury goods to customers in China. Korea and Japan were the top travel destinations in 2014.
“I don’t see this as [being] particularly about China; it’s a global pricing discussion and there are a number of brands now starting to address it,” said Keith, who was talking at the Great Festival of Creativity here on Wednesday. “Industry-wise, this is something people are going to have to look at, it’s fundamental to the business model that we have.”
Globally, the luxury fashion market is adjusting to a “new normal” of lower, but more sustainable growth, according to Bain & Co.’s 2014 China Luxury Market Study. However, mainland China is trailing behind, showing for the first time a negative trend in 2014.
“In China, we have overhead costs particular to this market. We have higher rents than anywhere else in the world and increasing labor costs, so if anything, prices are going to have to increase rather than decrease,” admitted the ceo. “The fact that the consumer has complete transparency around the world means that it’s the consumer who is leading the agenda. The brands that are not prepared to get on board are going to have issues.
“From a Lane Crawford perspective, we recognize the fact that we are not competing on price. We can’t at the moment, and until that discussion becomes a wider industry issue, we’re not going to be able to,” he concluded.
How luxury brands will innovate in 2015 dominated the remaining discussion among a panel of fashion and business leaders, including Michael Ward, managing director of Harrods; David Zhao, ceo of Shang Pin; Lewis Taylor of David Collins Design Studio, and Brent Hoberman, British entrepreneur.
The use of technology in-store was debated. The panel agreed that integrating invisible technology, such as Shiseido’s “magic mirror,” which gives consumers a virtual makeover and allows them to e-mail the image, will play a big role. The limits of customer service and the role of artificial intelligence will be explored.
For Lane Crawford, it’s about pursuing an omnichannel strategy.
“In a market like China, which is very spread out, with cultural variance and rapidly changing consumer [preferences], it’s [omnichannel] almost tailor-made,” said Keith.
Zhao, ceo of Shang Pin, the first e-tailer to stock Topshop in China, said his company will train 1,000 “fashionistas” and feature around 100 popular fashion bloggers to carry the brand’s message and advise Chinese shoppers on purchasing choices.