Thursday, 7 May 2015

Across the Board

Queues like these in front of Chanel will soon be gone in Hong Kong
French fashion brand Chanel has made headlines for announcing it will standardize its prices around the world as a way to develop its share of the Chinese market.

Some other names are following suit, such as Burberry, Cartier and Patek Philippe, but some analysts warn the strategy could backfire by devaluing Chanel's image and making it appear less exclusive.

The French fashion house will start "harmonizing" its prices, beginning with its three iconic handbag models, the 2.55, 11.12, and the Boy bag.

The drop in the euro led to prices falling for the bags in Asia resulting in a surge in spending on the mainland, with the Boy bag falling from 32,700 yuan (HK$41,400), to 26,000 yuan, while in Europe it rose 3,720 euros (HK$32,200) from 3,100 euros.

The 2.55 bag, or February 1955, the date it was created
"We made a very important decision, to treat our customers the same way everywhere in the world. It was a big decision," said Bruno Pavlosky, Chanel's president of fashion.

"The reason we decided to do the price standardization was to prepare ourselves for the next 20 years," he said. "the brand is quite strong; the year before we had double-digit growth in almost every market, so we can afford to make such a decision."

He adds the harmonizing of prices allows Chanel to treat customers the same everywhere, which was not the case before.

This announcement will be another blow for Hong Kong's luxury retail industry, as fashion brands are more expensive on the mainland thanks to the strong yuan and luxury tax, and as a result, many mainland Chinese come to the city to buy expensive items for cheaper. They would also venture further afield to Europe, but now with prices soon to be standardized, they won't have to travel far.

This is Chanel's way of undercutting parallel traders who would entice Chinese students with free trips to Paris so they could buy handbags (one per person), and resell them back home at an inflated price.

Pavlovsky also says it is a concerted effort to end dodgy websites supposedly selling Chanel bags, making it difficult for consumers to tell if the products were "genuine, second hand or counterfeit".

Another interesting fact is that there are only 11 Chanel stores in China, and nine in Hong Kong alone.

With the price standardization starting to take effect, Hong Kong will still have a bit of cache for being a fashion-forward city for mainlanders to see the latest trends and take advantage of the wide selection of goods. But the lineups in front of luxury stores will probably disappear very soon.

Does the Hong Kong government have a plan B for the retail and tourism sectors?

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