The Strategist

World prices for luxury goods in different countries are aligning

06/10/2016 - 15:17

World prices for luxury goods will be equalized across countries due to rising demand from the middle class, unprecedented price transparency and the Chinese government's desire to increase tax revenues. This is the conclusion of Exane BNP Paribas’ analysts, who composed a joint study with Deloitte. The price alignment will serve as a deterrent to the growth in revenues and margins. In addition, analysts say that Italian brands will become the most vulnerable in this race.

The study analyzed more than 70,000 luxury goods world's leading brands, analysts tracked data on prices in their own online stores brands at the end of May 2016

Countries – producers of luxury goods offer the lowest prices in the world. Luxury goods in Europe is cheaper than the world average, and is more expensive in Asia, the analysts concluded. The cheapest country is Italy: price of the same luxury goods there is 17% below the world average. Same products are also cheaper than average price in countries such as France (-16% on average), the UK (-14%); the US has it about average (99%). The most expensive country is China, where prices of luxury goods are 30% above the average. However, the proposed range is in wider Asia, the analysts concluded.

Prices of goods and fashionable casual wear diverge the most. The regional difference is the biggest at Moncler, and the lowest - at Brunello Cucinelli; prices of Louis Vuitton fluctuate more than that of Burberry, said the study.

One-third of all spending on luxury fell on the Chinese in 2015, according to Bain&Company. Due to the currency fluctuations, the Chinese could save 39% in August 2015 arriving for luxury goods in Paris, wrote the Financial Times. According to The Wall Street Journal, Chanel fashion house in April 2015 has raised prices in Europe and decreased in China. This step was supposed to reduce the gap growing due to the weakening euro, which forced the Chinese to choose European stores.

Julius Baer Bank previously noted an interesting fact. "Various indicators, which reflect state of the "luxury goods" sector (i.e. value of the auction houses securities, exports of Swiss watches, etc.), show that it continues to remain under the influence of growth constraining factors. This is consistent with reaching the record high level of consumer confidence, and the partial easing of macroeconomic picture. As a result, we see continued weakness in the global segment of durable goods and clothing, which occupy more than half of luxury goods. While assessment of the market value of equities looks fine, prices are under pressure, and the comparative potential of the sector's growth is limited.  

Based on our generally restrained securities forecast, we are lowering estimate of the segment to "below market". Accordingly, the overall consumer sector has been downgraded to "neutral" assessment. A segment worthy of special mention is affordable luxury class of products, which do not depend on the individual regions, and continue to show good results thanks to lower prices ", - commented Christoph Riniker, Head of Strategic Research at Julius Baer.