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Luxury Brands Are Slashing Prices in China in Response to Lower Tariffs

Beijing’s decision to reduce tariffs on consumer goods has prompted luxury brands selling in China to trim their prices there.

As May was winding down, China’s State Council, called a cabinet in the U.S., slashed tariffs on clothing, shoes and headwear from 15.9% to 7.1% starting July 1, a move designed to stimulate global imports as trade war tensions simmered between the U.S. and the world’s second-largest economy. Tariffs on leather bags, previously as high as 20 percent, dropped to under 10 percent.

According to a Caixin report, Louis Vuitton took first-mover status on June 29, spurring fellow luxury houses Hermès and Gucci to revise downward their own prices on select items as well. However, brand prices there remain well above what Chinese tourists will find when jetting off to the global fashion capitals of New York, Paris, London and Milan. Price comparison data gathered by Caixin reveals that the Prada Cross-Section Sneaker remains $240 cheaper in the U.S., for example, while the Chinese price tag for a Bolide 31 bag from Hermès stands $464 higher than the same product on offer stateside.

Comparatively high value-added and consumption tax rates — often in the double digits — in China further drive end prices up, a factor that fuels Chinese shopping tourism to Western countries.

This year, Bain said in its 2017 China Luxury Report that the country’s domestic luxury market expanded by 20 percent in 2017, with mainland growth outpacing the rate of purchases made overseas. With their increasing spending power, millennials have been particularly influential in reinvigorating China’s luxury consumption, Bain partner and report author Bruno Lannes said.

“We’re seeing luxury brands repositioning themselves to better reach this influential demographic group, particularly through digital media that we know play an influential role in shaping younger consumers’ opinions about luxury and fashion,” Lannes said.

Editor’s Note: This story was reported by FN’s sister magazine Sourcing Journal. For more, visit Sourcingjournal.com.

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