Sales of Luxury Goods Decline Substantially in China

Luxury goods sales in China have dropped significantly after rapid growth over the past few years, according to Guangzhou's 21st Century Business Herald. Luxury goods sales in mainland China slowed down in 2013 to a 2% growth rate, compared with the 7% annualized increase in 2012 and 30% in 2011. And brands are reacting by closing up shop. In 2013, the flagship stores of Giorgio Armani and Dolce & Gabbana in Shanghai were closed. Cartier has closed ten stores in China.

According to a recent Bain & Company report, the compounded annual growth rate reached 27% between 2008 and 2012, and in that time, most high  fashion labels aggressively expanded their market outside first-tier Chinese cities. Louis Vuitton, for instance, was operating 64 stores in 32 first, second and third-tier mainland Chinese cities. Burberry had 70 stores in 36 cities on the mainland. Gucci was running 59 stores in 32 cities, and Prada was operating 27 stores in 19 cities. However, now that sales have come to a near-halt, brands are struggling to maintain growth in China similar to what they have seen over the past several years. Louis Vuitton's growth rate dropped to 1% in China in 2013, and its high fashion counterparts have experienced similar negative effects.

Guangzhou's 21st Century Business Herald blamed the downward trend in growth in the Chinese luxury goods market on a slowing economy, the government's prohibition of using public funds to buy luxury items (which has been in effect since June 2012), and the nation's tendency to purchase luxury goods outside of China. In fact, in 2013, more than half of luxury goods bought by Chinese nationals had been purchased in foreign countries.

Also worthy of noting: The flood of counterfeit luxury goods (the paper specifically cites the influx of  counterfeit Louis Vuitton bags in the Chinese market) has lead to a decrease in desirability of authentic luxury goods. (Something we have been talking about on TFL for sometime now). Lastly, Chinese nationals reportedly have begun placing "considerable emphasis on custom-made products and services," which has led to a decreasing appeal for luxury brands that mass produces their merchandise.