Chinese government reduced value-added tax up to three percent in an effort to reinvigorate the economy. This resulted in luxury fashion labels such as Louis Vuitton and Gucci slashing their suggested retail prices in Mainland China. In the following month, US President Donald Trump announced plans to roll out tariffs as high as 25 percent on Chinese imports. In retaliation, China also raised the rate on imports for USD 60 billion of US goods to 25 %.
As per research firm Sanford C. Bernstein affluent Chinese consumers are not indulging on luxury and non-essential goods. And, analysts predict, the lowered interest by affluent Chinese customers could reduce the capabilities of premium companies. Indeed, China’s trade war with the United States is adversely impacting its luxury sector-further slowing its economic growth. The country’s economy grew by just 6.2 % in the second quarter of this year despite USD 291 billion in tax cuts. This is the slowest growth rate recorded by the country since the first quarter of 1992.
Despite USD 291 billion in tax cuts this year, Chinese economy grew just 6.2 percent in the second quarter – the slowest rate since the first quarter of 1992. The economy is increasingly linked to global markets and reacts very quickly to external shocks. Political and economic tensions between the world’s biggest economies have continued to impact the country’s economy throughout the spring and summer months.
Tariffs slowdown quarterly sales growth
In April, the Chinese government reduced value-added tax up to three percent in an effort to reinvigorate the economy. This resulted in luxury fashion labels such as Louis Vuitton and Gucci slashing their suggested retail prices in Mainland China. In the following month, US President Donald Trump announced plans to roll out tariffs as high as 25 percent on Chinese imports. In retaliation, China also raised the rate on imports for USD 60 billion of US goods to 25 percent. Tariffs had a real impact on China with its growth in its quarterly sales slowing down considerably. Its second quarter growth was the slowest recorded in over 27 years.
Luxury sector grows despite slowdown
However, despite the slowdown in China’s economy, luxury brands continue to invest there as the affluent class is increasing its expenditure on high-end goods. This was clearly indicated in the first quarter results of Burberry which showed mid-teens percentage growth. Louis Vuitton’s products also witnessed a strong demand in China. Other brands like Louis Vuitton, Bulgari, and Cartier were successful in reaching digitally savvy Chinese consumers by effectively leveraging influencer relationships and Eastern social media platforms. Meanwhile, analysts expect that a “polarisation” among brands to probably continue, and anticipates that LVMH brands like Louis Vuitton and Christian Dior would be among those maintaining the upper ground.
The Gartner L2’s 2019 “Digital IQ Index: Luxury China” report also reveal adoption of luxury brands by Chinese e-commerce stores is on the rise. More than three-quarters of luxury fashion brands now have their own Chinese e-commerce shops. Luxury brands should hence take the current ‘crisis’ as an opportunity to innovate their mobile-commerce capabilities into truly global online-to-offline shopping experiences.