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02 June 2015

China to the Rescue 

The influence of Chinese purchasers on the European luxury goods market has been largely forgotten as economic weakness and new rules on corruption have diminished demand for luxury products. However, there are signs that a renewed consumer appetite could come to the aid of the luxury sector.

Most important is the weakness in the euro. The price gap between luxury handbags, watches and jewelry in China and Europe is the widest in three years. A Louis Vuitton Speedy 30 bag is now at least 60% more expensive in China than in Europe, a near-50% increase from a year ago.

This is luring bargain-hunters to Europe. According to VAT refund group Global Blue, that spending by Chinese tourists in Europe was 122% higher in March than a year earlier, up from 52% in February.

This phenomenon has its downsides for the luxury goods manufacturers, which could be in danger of losing control of their brands as they struggle to reconcile pricing in different markets. However, some, such as watchmaker Patek Philippe, are trying to harmonize pricing to some extent by lowering prices in Asia.

The loser to date has been the Hong Kong market, where many luxury groups have invested heavily, although lower prices could have a positive impact.

The picture is certainly not entirely rosy for luxury goods firms globally. According to Global Blue, Russian spending fell 39% in March. Although the rate of decline has slowed since January, the boost to the industry from Russian consumers in recent years appears to be o