Shoppers seeking to grab a bargain after Chanel started cutting prices in the region to account for a yearlong weakening of the euro that has driven Asian shoppers to cities such as Paris for their luxury purchases.
Chanel handbag | Source: Shutterstock
HONG KONG, China — As Lily Li waits in line outside the Chanel SA store in Hong Kong’s central financial district, the nearby Chloe, Berluti and Ralph Lauren stores stand almost empty.
Li is among about 40 shoppers seeking to grab a bargain after Chanel started cutting prices in the region to account for a yearlong weakening of the euro that has driven Asian shoppers to cities such as Paris for their luxury purchases. Some didn’t make it inside, being turned away by a store employee because their chosen item had already sold out.
“It would have cost me more than HK$37,000 ($4,700), but now it’s HK$10,000 less,” said Li, 30 minutes into her wait behind 10 other shoppers for a black Boy Chanel bag. “I was planning to go to Europe to buy handbags, but there’s no need to travel there to shop now.”
Chanel and luxury Swiss watchmaker TAG Heuer said this week they will adjust prices globally because of currency fluctuations. A weakening euro has widened the gap between the price of items sold in China and Europe to an all-time high, with soft luxury-goods costing as much as 70 percent more in the Asian country, according to Exane BNP Paribas analyst Luca Solca.
“As the price cut between Europe and China gets more extreme, this prompts the Chinese consumers to buy abroad, either when they travel or through professional daigou agencies,” London-based Solca said, referring to the bulk buying groups. “Brands are not particularly keen to see a massive transfer from one region to the other.”
The euro has plunged 24 percent against the dollar over the past 12 months. European Central Bank President Mario Draghi is debasing the region’s currency by flooding its struggling economy with 1.1 trillion euros ($1.2 trillion).
The Federal Reserve is also moving closer to raising interest rates, making the dollar more attractive. Goldman Sachs Group Inc. predicts the divergence in monetary policy will send the shared currency lower, extending this year’s 12 percent slide.
Chanel’s price adjustments will extend worldwide on April 8, the company said. The price of its iconic 11.12 and 2.55 bags, as well as Boy Chanel bags, will increase by 20 percent where they are sold in euros, the company said. Prices of the same bags in China will fall by more than 20 percent. Korea, Vietnam, Thailand and Russia will also see prices drop, while prices will remain stable in Japan, the U.K., U.S. and Canada.
At a Chanel store in Shanghai’s Lujiazui financial district, where the price revisions have already been made, a black leather Chanel 2.55 bag cost 29,800 yuan ($4,783), while a Boy Chanel bag cost 26,000 yuan.
TAG Heuer, owned by LVMH Moet Hennessy Vuitton SA, said it will cut prices internationally due to the strong Swiss franc.
The price revisions will help keep locals shopping at stores in their home countries and also help brands manage inventory, said Deborah Aitken, London-based analyst for Bloomberg Intelligence.
“If a currency swings hugely and you don’t adapt price when travelers travel, a high-tag luxury purchase which is 10 to 20 percent lower elsewhere often pays for the trip abroad,” Aitken said. “But then you have inventory and empty stores in the original location.”
Chanel and TAG Heuer had raised prices significantly in China in recent years, so the revisions represent a normalization of pricing, said Exane BNP Paribas’ Solca. Even so, the move will put some pressure on other luxury brands to follow suit, particularly with handbags and watches, according to Rahul Sharma, managing director of investment firm Neev Capital in London.
“It’s quite likely that you’ll see some of them addressing this gap, slightly increasing the price in Europe and lowering it elsewhere,” Sharma said.
By: Liza Lin, Jill Mao in Hong Kong and Jillian Ward; editors: Stephanie Wong and Paul Jarvis.
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