French fashion house Louis Vuitton is reducing its footprint in China as demand for haute goods has waned and sales have suffered.
The retailer will close one of its two Guangzhou flagships and has already closed three other locations in China—another in Guangzhou, one in Harbin and one in Urumqi, according to China Daily. LV is reportedly reviewing as much as 20 percent of its stores in the country to determine whether they should be moved, refurbished or altogether closed.
Industry experts, however, don’t think LV’s move is unusual as the company said earlier this year that it would close some stores in China as part of an operational restructuring. Most of those closures will be in second-tier cities.
The company recorded an 18 percent jump in overall revenue for the first nine months of the year to 25.3 billion euro ($26.9 billion), but revenue growth in Asia (except Japan) fell close to 6 percent year over year in the period.
Luxury consumption in China has plunged partly because of the country’s slowing economy and the government’s campaign against extravagance. Shoppers are also taking their disposable income to Japan and Europe where weaker currencies have made shopping cheaper.
The personal luxury goods market, which includes fashion, leather accessories, hard luxury and fragrances and cosmetics may have grown 13 percent to 253 billion euro ($269.3 billion) this year, according to a Bain & Company luxury report released last month, but real growth is “significantly slowing” to 1 to 2 percent.
Chinese consumers still account for the biggest portion of global luxury purchases (31 percent), followed by Americans with 24 percent and Europeans at 18 percent, Bain noted in the report, but luxury-goods there consumption contracted for the first time last year after years of swift growth.
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“Undoubtedly, Chinese consumers play a primary role in the growth of luxury spending worldwide,” Federica Levato, a principal at Bain and co-author of the study, said. “For years, we have known that they spend far more abroad than in Mainland China, but what’s changing is that they’re spending little money in historically popular destinations, such as Hong Kong and Macau, and are instead gravitating to new locales, such as Europe, South Korea or Japan, to benefit from currency fluctuations that drive favorable price gaps.”
LV isn’t the only luxury brand lessening its presence in China. Hermes and Versace have been closing stores for the last couple of years and more brands could soon follow suit.
The China stores shuttering may be a strategic adjustment for some brands that consider upgrades or closures as more viable than investing further to open more retail outlets.
“Luxury brands are preparing for the changed situation by store upgrades and downsizing,” Zhou Ting, director of Shanghai-based luxury consultancy Fortune Character Research Center told China Daily. “What this means is that the rapid growth phase of the Chinese luxury market has passed and brands are now banking on strategy, technology and price adjustment for growth.”