The twisted tale of currencies bruise luxury markets
Patek Philippe and Chanel have already announced significant price adjustments across markets.
The sharp moves in currencies that have taken place in recent months have also left the sector with an unbalanced price structure across regions. This is creating significant issues for the luxury goods sector not least grey market issues and price and mix pressures.Patek Philippe and Chanel have already announced significant price adjustments across markets (price increases in Europe by 10% and a price decreases in Hong Kong and China by 20%). As experts predict, the rest of the sector will follow suit albeit not by quite the same order of magnitude.
According to J.P. Morgan analysts, the consequences of such an unbalanced price structure have depressed sales in local Asian markets most noticeably in mainland China and Hong Kong. Even Hong Kong has become a relatively expensive place to shop for European luxury goods brands, as consumers are paying 20% more than in Japan and 40% more than in Europe. That´s why we are experiencing a grey market resurgence that is putting pressure on the industry.
Luxury goods are purchased in places where currencies have depreciated the most and where luxury goods companies have not raised prices to offset the price depreciation, typically Europe and Japan. These goods are then in part shipped into China and distributed through unauthorised retailers at a discount. The mushrooming and firepower of internet sites such as Alibaba/The Market Place and the regulation and fiscal void around grey market goods have enabled this phenomenon to scale up to unprecedented levels. Some consultancy firms and luxury executives believe the grey market in China could now represent as much as 20-40% of luxury goods sales.
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