Opinion | Luxury brands still reaping big rewards in China

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A worker furnishes a new luxury goods re-seller in Beijing. Photo: AP

Published: 4:31pm, 18 Feb 2013Updated: 5:46pm, 18 Feb 2013

The profit margins of global luxury goods retailers on the mainland are so substantial they are shocking, according to an industry insider.

A report aired on CCTV on Sunday, which conducted price-to-price comparisons of different luxury items in Europe, the US and China, found huge “unaccounted” mark ups on most products even when factoring in China's high luxury goods taxes.

“The profits [luxury brands] are making in the China market will scare you to death!” said Lu Xiaoming, former head of luxury label Montblanc’s China operations.

Many believe China’s high import duties for luxury goods encourage consumers to leave the country to make their big ticket purchases. A Chanel bag in Shanghai, for instance, costs 45 per cent more than in Hong Kong and 72 per cent more than in Paris. The same Tiffany & Co necklace retails in the US at 6,900 yuan butt 11,000 yuan on the mainland.

This is part of the reason why 60 per cent of luxury purchases are made overseas, according to management consultancy Bain & Co.

But despite a recent slowdown in domestic luxury goods consumption, Lu believes the biggest retailers are still having a field day doing business in China - home to the world’s top luxury goods spenders - and will be reluctant to cut prices in the future.

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