Luxury shopping firms bet on casino approach in China

Tue Apr 30, 2013 5:08pm EDT
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By Melanie Lee

SHANGHAI (Reuters) - With flagging sales in their mainland stores and increasingly price savvy consumers, luxury companies are taking a leaf out of casinos' play books by offering junkets to wealthy Chinese clients eager to splurge in their Hong Kong stores.

For companies like PPR and LVMH, who have spent the past few years building stores across China, the shift toward overseas spending is forcing them to adapt their strategy in China to the tune of: if you can't beat them join them.

"Luxury companies' results for Q1 certainly suggest that sales to Chinese consumers outside of China continue to grow faster than sales to Chinese consumers within China," said Vincent Liu, managing director of Boston Consulting Group in Hong Kong.

He says about a third of luxury sales - from handbags and shoes to cosmetics - to Chinese take place in China versus a third in Hong Kong or Macau and a third in the rest of the world.

Luxury goods in mainland China can be anywhere between 30-40 percent more expensive than in Hong Kong due to luxury and import taxes as well as pricing strategies.

"Their real stores are in Hong Kong or Paris. Their Chinese stores are just store fronts," said Renee Hartmann, co-founder of consultancy China Luxury Advisors.

Upmarket brands are increasingly holding private events in Beijing or Shanghai for an exclusive clientele - events where they pay deposits on items in the mainland and then are flown on an all-inclusive trip to Hong Kong to complete the purchase.

This not only helps manage relationships with wealthy clients, it also functions as an expensive marketing scheme. Industry experts compare this to tactics used by gambling firms to lure high-rollers to casinos by flying them in using private jets and putting them up in five-star hotels.   Continued...

Giant suitcases for Louis Vuitton are displayed inside a shopping mall the upcoming opening the largest Louis Vuitton store in China, which is located in Shanghai, July 18, 2012. REUTERS/Aly Song