If the Chinese buyers aren’t buying, luxury goods aren’t selling. These past few months have shown just how much the luxury industry is dependent on this new generation of fashionable young Chinese consumers pulling out their credit cards on Champs-Élysées top-end shops.
According to global figures from Global Blue – the tax-free shopping center in Switzerland, tourists spent 14 percent less in July 2016 than in the same month of last year. The implications these figures hold for the high-end goods industry are, to say the least, worrying.
A Luxury Goods Worldwide Market Report by Bain and Company Inc. puts tourism spending at more than a half of European luxury revenues and about a third of global luxury sales.
It calls the key strategic players to arms. Otherwise, Bain predicts, the outlook for the future of the entire luxury industry looks pretty grim.
Why Aren’t Luxury Goods in High Demand This Year?
Department Stores and Discount Sprees
The slowdown in consumerism has decreased foot traffic in many malls. In the summer months of 2016, fashion brands cut prices by as much as 80 percent.
It’s a dangerous move for luxury retailers. Promotions and discounts as advertised by department stores might have ensured their temporary survival, but they’ve also triggered a Pavlovian expectation for future special deals in consumers.
This, coupled with fewer tourists and tighter budgets has changed the dynamic between top-end brands and department stores into a tense, tug-of-war relationship. Michael Kors Holdings and Ralph Lauren have been the hardest hit by the discounts in recent months.
E-commerce on the Rise
The biggest gift of the Internet is transparency. The spread of e-commerce has somewhat unveiled the differences between the price of luxury products and their real value. Consumers can now purchase items online or, at least, comparison-shop.
In 2015, e-commerce grew to a 7% market share. The biggest new online players are the Chinese e-tailers who have taken their products on the e-Silk Route, outperforming their European and American competitors.
One new reality seems to take shape. Brick-and-mortar shops are not the dominant selling ground for luxury goods anymore. Company-owned retails and digitization are setting new consumer patterns.
No Binge Shopping for Chinese Tourists
Chinese tourists on tight budgets have to the big scare of the luxury goods market. Up to 2016, Chinese consumers accounted for 31% of global purchases, followed not so close by Americans (24%) and Europeans (18%), says the Bain Report.
The Chinese are shopping globetrotters. Their spending power is directed not at home, in Mainland China, but abroad. As currency fluctuations shift across the world, so are the travel destinations for Chinese consumers.
Post-Brexit U.K., for example, saw luxury goods consumers from the Asian side, Japanese and Chinese alike, capitalize on the weak pound.
A healthy influx of shopaholics turned Oxford Street in London into the world’s cheapest luxury market, while British luxury companies like Mulberry and Burberry have become the Mecca of luxury shoppers.
The rest of the luxury goods world doesn’t fare that well. Mainland China, for example, has been hit by a drop-off of 8 percent of the Chinese Yuan against the euro, a war on graft and corruption, and changing trends that, all combined, mark a decline in the shopping power of the biggest spender in the world – the Chinese middle-class individual.
Take into account the current anxiety ushered by the Paris and Nice terrorist attacks, and the slowdown in luxury goods purchases in 2016 makes complete sense. Sometimes, necessity goods are the only luxury one can afford.