Where’s the bottom?
Later this month, Bain will release its 2016 luxury industry outlook but early predictions have the market bottoming out later this year and rising again in 2017. As usual, China is at the center of all the action. Last year, dramatic stock declines and a crackdown on corruption in China resulted in some of the biggest declines in luxury earnings since the financial crisis, but in-country demand is expected to rise by the end of this year and into 2017.
They expect new regulations and tax protocols will result in a significant decline in grey-market imports, thus boosting Chinese domestic demand. Given that luxury retailers have moved to harmonize prices between Europe and China over the past year, there’s also now less incentive to make purchases outside the country. According to the upcoming report, the price discrepancy between Europe and China has been halved in the past year, from 70% to 35%, and is expected to decline to 25% “in the near future.”
European sales have obviously taken a serious dip after the most recent terrorist attacks in Paris and Brussels, but this isn’t expected to put any long-term pressure on earnings. In general, there don’t seem to be any identifiable drivers for international demand growth in the forecast, which could prove hugely problematic for already-struggling retailers in the event of some sort of macroeconomic shock.
If you live in China or Hong Kong, we’d love to hear about your experience of acquiring luxury goods and how it’s changing on the ground, if it actually is?
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