Why luxury brands set a higher price in China compare to Europe?

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The key and only reason for such a large number of Chinese consumers choose to purchase luxury goods overseas is the greatly difference between the price in China and Europe. There are two major reasons why the luxury companies establish a higher price in China. Firstly, the high tax in China leads to the higher price on luxury goods. The following is a chart of Chinese luxury good taxation.

Product Tariff Value-added tax Consumption tax Total
Jewelry 0%-35% 17% 10% 27-62%
Watches 11%-23% 17% 20% 48%-60%
Clothes 14-20% 17% N/A 31%-37%
Handbags 10%-20% 17% N/A 27%-37%
Cosmetics 6.5%-15% 17% 30% 53.5%-62%

Source:luxe.co

 

Another reason for the high retail price is the majority luxury and affordable luxury brands charged a high premium to not only achieve a high profit but also maintain a luxury brand image for Chinese market. With the relatively low rent cost, cheaper labor cost and higher premium, luxury brands achieve a great profit to make up its loss in either Europe or U.S. market.

The following chart stated the percentage of luxury brand’s price premium on Chinese vs us site. As we can see, almost one third of the pure luxury brands charged at most 16% to 25% higher price in China compared to their U.S. price. Famous accessible luxury brands especially Michael Kors and Calvin Klein charged at least 36% and at most 50% more premium on some specific item in Chinese market compared to U.S. sites.

To attract Chinese consumers to shop in the local boutique other than wait for overseas trip, it is important for luxury brand companies to rebuild their pricing strategies.

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