The UK is now the world’s cheapest luxury market according to analysis conducted by Deloitte that shows huge differences between prices of luxury goods around the world. The accountancy firm analysed prices of various luxury items and found that because of the falling pound against the US dollar, these items were cheapest in the UK.
The company undertook the analysis on behalf of the Wall Street Journal. It gave several examples of luxury items including a Louis Vuitton speedy 30 handbag that as of last Friday retailed for the dollar equivalent of $802 in London but costs $850 in Paris, $970 in New York and $1,115 in China.
Meanwhile a men’s Brunello Cucinelli cashmere sweater is $808 in the UK, compared to $940 in France, $995 in the US and $1,287 in China. A Loewe elephant purse is $311 in London, $330 in Paris, $380b in New York and $434 in China.
The Wall Street Journal said the effect of this price disparity has been a spending surge in Britain. It quoted figures from tax refund service Global Blue showing spending by visitors on items for which buyers seek tax refunds rose over 36% in the UK in August while similar spending fell 20% in France and more than 11% in Italy that month.
But Deloitte also said the luxury brands will eventually adjust their prices to take currency fluctuations into account. However, it is unclear how fast this will happen. Nick Pope, a director in Deloitte’s advisory business, told Fashion Network: “Luxury brands are often cautious about making ‘reactive’ pricing adjustments because such moves may risk the brand having a negative perception in the eyes of the consumer.
“If over the next 6-12 months this sterling position becomes the ‘new normal’ (and hence margins are under continued pressure) I would expect more brands to respond with pricing adjustments.”
While this means prices for local shoppers in the UK will rise, more than half of sales for luxury stores are made to tourists with Chinese visitors being the largest single group. Visit Britain said forward bookings for the autumn are up 24% from China.
With such strong price disparity, many Chinese travellers buy luxury goods abroad to sell on in their home market. Despite brands, including Chanel, Burberry and Louis Vuitton, adjusting local prices to make shopping in China more attractive, price variations remain high and fluctuating currencies can undo many brands’ efforts to harmonise them.
Deloitte’s Pope told us: “The differential in price points across different international markets has always existed in luxury – partly driven by the operational costs of different markets, and the need to maintain margin in higher cost jurisdictions. However, the sense in the industry is that there may be increased pressure from China to ‘repatriate’ some of the demand for luxury goods which, to this point, has mainly flowed overseas via the Chinese tourist shopper. Hence it may be that over time we see the ‘arbitrage’ narrowing – however, our global luxury pricing tool (which looks at over 100,000 items every week) is still currently showing the gap to be as wide as ever.”
This spring, research L2’s latest study on Luxury in China found that Chinese customers pay 37% more than global consumers for Burberry and 25% more for Louis Vuitton. Twenty-three percent of pure luxury brands (vs accessible luxury brands) in L2’s Index add a 16%-25% premium to items sold in China.
L2 said accessible luxury brands were even more resistant to lowering prices (with some adding up to 35% to goods sold in China) as they have used prices to boost low margins in the US and the EU. Several such as Calvin Klein have positioned themselves as pure luxury brands in China and price accordingly.