Burberry prices are too high in China and Hong Kong and the brand must make cuts if it wants to arrest falling sales in the region says a retail analyst.
Last week the UK-headquartered luxury fashion label reported its second consecutive drop in earnings, this time by some 10 per cent. Sales in Hong Kong have fallen more than 20 per cent for three consecutive quarters.
Jack Chuang, a partner with Hong Kong-headquartered OC&C Strategy Consultants, says while the company is planning to cut overheads by £100 million over the next two years, the solution is a lot simpler.
“Saving cost might help with Burberry’s short-term financial performance, but we don’t think it will help solve the fundamental problems it has in Asian market.
“Among all the luxury brands, Burberry is almost the one with most significant price gap between Asian and European markets. Prices in Mainland China are almost 40 per cent higher than in UK, while in Hong Kong, it is 20 per cent higher.”
Chuang says while a lot of luxury brands have started to think about price equalisation – citing Chanel, Cartier and Dior as examples from last year and, more recently, Valentino – Burberry raised its prices in China again in May by 5 to 10 per cent.
“If it continues this type of strategy, more and more domestic demand will shift to the overseas market through travelling or cross-border eCommerce and no matter how they save cost (whether limited to Hong Kong or globally), they are going to have problems in Asia.”