Big-name luxury brands lower prices as tariffs drop

Sellers in China selling big-name luxury brands have cut their sales prices in response to reduced import tariffs, although the benefit for consumers has remained limited so far, according to experts.

Since the country implemented the tariff cut on 1,449 imported goods on July 1, many luxury brands have adjusted their prices accordingly. After Louis Vuitton became the first brand to alter its prices, many others followed suit, including Gucci, Hermes and Cartier.

According to the Customs Tariff Commission of the State Council, the average tariff on imported clothing was lowered from 15.9 percent to 7.1 percent. However, as tariffs only make up a small part of products' overall cost, the price cut remains relatively small, ranging between 3 to 5 percent.

Zhou Ting, head of Yaok Research Institute, which observes and studies the luxury industry, said the adjusted tariffs will not have a significant effect on prices. "Tariffs have a relatively small impact on the final retail price, so luxury brands will only lower their prices a little bit according to the tariff," she said.

For example, the price of a Louis Vuitton Neverfull handbag has dropped to 9,900 yuan ($1,468) from 10,400 yuan previously, down by 4 percent.

"Do I look like I'm short of the 500 yuan? I'm short of the remaining 9,900 yuan," joked Chen Xinyi, a 27-year-old office worker. She said the price cut was too small and would not have any obvious effect on her decision on whether to buy a luxury handbag or not.

However, the price cut is likely to shake the daigou community, who buy products abroad and sell them to domestic buyers, including products ranging from handbags to milk powder and medicines, Zhou said.

With prices in China edging closer to those in other countries, the daigou industry will struggle to survive, said Zeng Mingyue, researcher at the luxury products research center at the University of International Business and Economics in Beijing.

"The Chinese purchasing power for luxury products has been noticed around the world, so brands need to think how to better approach potential Chinese consumers and make it easier for them to shop, with measures including price adjustments," Zeng said.

Although the price cut might not have a significant impact on consumers in the Chinese mainland, it could threaten the luxury retail business in Hong Kong, which mainlanders often regard as a duty-free shopping paradise.

According to a report by the South China Morning Post, visitors from the Chinese mainland made up one-third of total travelers to Hong Kong, playing a large role in helping the local retail industry.

Hong Xueyu, an analyst from Guotai Junan Securities Co Ltd, said although prices have only dropped a little, with other brands following suit Hong Kong will become less attractive for mainland consumers, especially with the yuan dropping.

Office worker Chen said: "I don't usually buy from Hong Kong anyway, there are too many fake daigou claiming to buy from Hong Kong but selling fake products manufactured in Guangzhou. It is really hard to tell and the prices they ask are not worth the risk."

According to global consulting firm Bain & Co, luxury products' growth rate in the Chinese mainland is outpacing other regions around the world, with average growth reaching 20 percent year-on-year. The figure is likely to remain at 10 percent in 2018, according to Bain & Co.

First quarter financial reports from major luxury brands LVMH group and Kering SA both stated that China has become their main driver of revenue.