Gifting Practice Crackdown in China Hurts Luxury Brands

Published Date : Apr 08, 2015

The luxury brands Prada, Louis Vuitton, Gucci, and others are facing a tough time in China due to crackdown of revenues. One reason for business falloff in the region is changing practice of gifting to company executives and officials for favors.

On top of this, buying choices are changing. What was luxury earlier is ordinary that has come as a nightmare to these luxury brands. The luxury brands Prada, Louis Vuitton that were doing good a couple of years ago have all been hurt. The sales for these luxury brands started to slide from 2013 onwards when the Chinese President came out with the gifting crackdown.

The luxury brands had the advantage to cash on the new wealth of China, which they did without understanding the market well. This has resulted in tarnished image to some extent of the luxury brands in this market. This can also be accounted to changing taste and increasing sophistication of the Chinese consumers. 
Prada last week reported a 28% plunge in net income along with decline in revenue. As per another news report, executive at Prada are committed to cut costs particularly those that are associated with opening of new stores.

As per a leading consultancy, a bolder move may be needed by the company. The company had the view that a new tendency ‘new normal’ could be a reason for slower growth for big labels as consumers have increased inclination to shop for less known brands.