Sales pick up
Luxury brands have cut prices on the mainland to bring them more in line with prices elsewhere in the world. Mainland prices are still more expensive, but the gap has narrowed, which consumers and analysts said is one reason behind the pickup in sales. For example, the price of a -Burberry classic cashmere scarf has come down to 3,900 yuan, or about 900 yuan higher than its price in the UK, said 28-year-old white-collar worker surnamed Wang, who was shopping at SKP Beijing.
"It used to cost 5,000 yuan," she told the Global Times on Saturday.
The high markups and hefty import tariffs on luxury goods sold on the Chinese mainland had led to an explosion in shopping agents know in Chinese as daigou. These agents buy products abroad and sell them to domestic consumers at below-mainland prices.
It's a grey market that accounts for about 60 percent of China's luxury spending, according to Cai Sujian, head of the Jiangsu-based China Luxury Institute.
The daigou phenomenon is one reason why Chanel announced in early 2015 that it would slash its prices on the mainland market by 20 percent. Since then, luxury brands such as Saint Laurent Paris and Cartier have cut their prices on the Chinese mainland to bring them more in line with those around the world.
According to a report by New York-based business intelligence firm L2, among the 29 luxury brands it researched, 45 percent of their prices on the Chinese mainland market are now less than 15 percent higher those sold in the US.
"When the price gap falls to an acceptable range, price-sensitive Chinese consumers will opt to buy locally," Zhou said.
At the same time, the Chinese government has cracked down on gray market smugglers and taken measures to stimulate domestic demand, such as adjusting tariffs and promoting duty-free shops, Cai said. Those measures have started to have an effect.
In the first half of 2016, the proportion of luxury goods that Chinese consumers purchased abroad fell to 40 percent, down from 43 percent in the first half of 2015, according to a report by marketing platform ContactLab.
The industry's recovery coincides with rising middle class incomes, according to experts.
"This group cares more about money management and asset allocation and has contributed a lot to the growth of luxury product sales," Cai said.
Moving online
Many luxury product companies are jumping on the online bandwagon through business-to-consumer sites, third-party e-commerce platforms such as Tmall and JD.com Inc or retail websites that specialize in luxury goods.
Around 80 percent of luxury brands now have an online presence in China, according to a report by New York-based bilingual luxury industry news provider Jing Daily.
And online sales for luxury goods grew 20 percent year-on-year in 2015, according to another report by L2.
"Traditionally, luxury brands stayed away from digital channels because they worried that participation would dilute their brand value and image," Zhou noted.
But now, luxury product companies have come to see the Internet as an important tool to reach younger consumers, as well as those from second- and third-tier cities, where the companies have very few stores, experts noted.
For example, Italian luxury carmaker Maserati, which opened a store on Tmall in 2016, has received 433 online orders for vehicles as of February.
The majority of those orders have come from areas where Maserati doesn't have dealerships.
Zhou predicted that online customers "in second- and third-tier cities will be the new engines of growth in luxury spending."
But Cai wonders if online customers will be as eager to buy without the physical experiences or premium service that comes with shopping at a store.
