Retail in Asia

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Big discounts ahead for China luxury shoppers

A sharply weaker euro is giving European luxury goods makers a headache: as the price gap for their products in Europe and China widens they may have to rebalance prices globally, which could hit earnings, analysts say.

European luxury goods have always been priced 30-40 percent more in mainland China compared to Europe, partly to cope with high import duties and consumption tax, said RBC Capital Markets analyst Rogerio Fujimori in a March 31 note. But due to the falling euro, to maintain margins in China, the price differential is now 60-80 percent.

"An adverse scenario for brands would be the need to reduce prices in China (to moderate the price gap) without being able to increase prices in Europe (in order not to cut off domestic consumers)," said Exane BNP Paribas analyst Luca Solca.

Either way, rebalancing prices could be painful.
 

(Source: red luxury)