Will China’s E-commerce Law Changes Make Luxury Handbags More Expensive?

There have been changes to e-commerce laws in China which mean that any Chinese buying goods on line will now face import duties. But will these changes affect the cost of luxury handbags and other items bought on line. Will these products now be subject to these duties? Since 8 April, 2016, goods that are purchased and sold online through free-trade areas will be subject to new duties. The new laws are not a ‘crackdown’ but are actually closing a loophole in existing regulations. Import duties will now be applied to goods shipped through free-trade areas such as Australia and NZ.

But, the description of the new rules as “e-commerce” laws is not quite true. First of all, they are not laws, they are regulations. Furthermore, the new regulations are essentially the application of duties that were up to that time waived or reduced for goods that went through China’s free-trade areas. These new rules are meant to make China’s tax regime more consistent, and are not aimed at increasing protection for the domestic Chinese market.

Previously, some parts of China had lower duties than other parts of China and this was unsustainable. It led to business loopholes that were taken advantage of by shrewd Chinese buyers and service providers. Hence, some type of rule change was inevitable.

The upshot of these import duties will be that Chinese consumers will have to pay additional costs for goods such as luxury handbags and other items if they purchase online from free-trade partners. The most imported products bought on line in China are luxury handbags, clothes, and shoes. But also popular products sold on line in China are food, milk powder, vitamins and drugs. In fact, the Chinese market for high-end, reliable, clean food and herbal products is huge and will continue to grow as China’s middle- and upper-class consumption spending grows.

Several Chinese e-commerce or duty-free services companies are not sure about how the regulations will be applied, so they have removed products from their symbolic online shelves, until future duties to be applied are more clear.   Yet, Murray Goulburn, a major dairy co-operative, has a pointed out that the new regulations are just the latest in a series of measures aimed at regulating China’s booming e-commerce market. They don’t think the new regulations will change its overall business, and said that they had anticipated the new rules “for some time”.

In September last year, the State Council, China’s cabinet, announced that it would be more rigorously implementing the 2010 Customs and Duties Law. This announcement made many e-commerce sites in China (or e-commerce services providers who supply Chinese customers) cautious about stocking foreign products.   

Imported products will probably always be more expensive to Chinese customers than domestic alternatives, as China’s cost of production is much lower. It is thought that there will be a 10-20% increase in the price of imported goods, as suggested in the new regulations.  It is unlikely to put off Chinese shoppers from buying a guaranteed clean and reliable product. Due to a number of deaths from tainted milk powder, Chinese consumers are not likely to trust Chinese dairy products for many years. Chinese buyer think that foreign products are cleaner and greener, and the many food safety scandals in China, makes it improbable that Chinese customers will switch to domestic alternatives, no matter the price rise.

But will the added costs of buying a luxury handbag deter Chines buyers? In a previous blog “The New Chinese Middle Class See LuxuryHandbags As A Status Symbol”, 

I reported that the Chinese people have a huge desire for luxury goods and the appeal of luxury brands is very strong. And it is not just Chinese women who are passionate. Chinese men are obsessed with luxury handbags as well. Men are in hot pursuit of luxury handbags like Gucci, Hermes, Burberry, Prada, Coach, Louis Vuitton. In fact, men are said to account for 45% of China's $1.2bn luxury handbag market.  Luxury handbags are thought of as status symbols. It is estimated that more than half of the world’s brand spending will come from Chinese shoppers this year.

The majority of these luxury handbags and other goods are not bought in China, but overseas. The main reason why Chinese buy in a foreign country is the price. China has traditionally had high import tariffs and consumption taxes, as well as higher pricing strategies which can can raise the price of luxury handbags in China by 50%. According to LVMH, a French luxury conglomerate, a Louis Vuitton handbag costs 30% more in Beijing than in Paris.

So the Chinese travel overseas to purchase their dream luxury handbags. Actually, for around 80% of Chinese travellers, shopping is a central part of their travel plans. For those who cannot travel purchasing online has been their next option.

China has, in truth, topped the U.S. to become the number one e-commerce market. Its middle class purchase a wide range of products online ranging from baby formula, health foods, vitamins, milk powder, skin care products, Purina for their dogs, as well brand items such as luxury handbags. China's shoppers have grown more savvy and are now looking to buy top quality brands. And they are not worried about the 2-3 week delivery time when they buy on-line. In fact, they prefer the wait because it offers some confirmation the products are really are from overseas and are therefore genuine.

But it is this market that the Chinese taxman has been missing out on, so it is no wonder the regulators have moved in to close the loopholes. There has also been an official clampdown on corruption and extravagant gifting which has affected the import market.

Even so the new Chinese middle classes still see branded goods such as luxury handbags as a status symbol, and brand names such as Gucci and Rolex continue to be popular search terms on Chinese blogging sites. The Chinese shopping binge looks set to last, and China's Ministry of Commerce expects that China’s profitable cross-border trade to become a US $1 trillion market this year. Whether these changes to the e-commerce rules regarding import duties will affect these estimates is yet to be demonstrated.

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Does The “It Bag” Remain Relevant In 2016?

An “It Bag” is a vernacular term created by the fashion industry to define a brand or type of high-priced designer handbag by manufacturers such as Chanel, Hermès or Fendi that became popular best-sellers. These handbags were also known as status bags and offered women a status symbol which they saw as being very significant. The “It Bag” was perceived to be the must-have fashion accessory by celebrities and fashionistas who yearned to be seen as the stylists of the time.

The term “It Bag” gained popularity during the 1990’s and 2000’s. But, by 2008 the acceptance of the "It bag" was reported to be in decline. By May 2011, whilst acknowledging that there would always be a market for exclusive status bags, Celia Walden reported that the idea of the must-have "It Bag" was no longer fashionable.

Now, in 2016, brands must be ready and willing to diversify as a recipe for success in the current market. Brands have not given up on the desire to create an “It Bag”. They are always looking to design that one bag which will become the one that everyone is talking about, but realistically they are conscious of the fact that they can no longer put all their eggs in one basket. So does the “It Bag” remain relevant In 2016?

The history of the ‘It Bag”

One of the original designers accepted with fashioning the concept of a distinguishable "It Bag" was Giuliana Camerino who started the Venetian fashion house Roberta di Camerino in 1945.  Her handbags were distinct due to their artisan-made hardware and characteristic use of fabrics previously kept only for clothing. Her ideas had an influence on later luxury brand designs including 1) in 1946, bags patterned with a trellis of R's (predecessor of Gucci’s G's); 2) in 1957, woven leather bags (predecessor of Bottega Veneta); and 3) in 1964, she designed a handbag with a unique articulated frame (a design later used by Prada).

Long before the notion of the "It Bag" became popular, many fashion houses such as Hermes, Chanel and Louis Vuitton had by this time fashioned handbags that became well-known in their own right. For instance, in 1935 Hermès created a top-handled leather handbag called a “sac à dépêches“, as part of their leather goods range. In 1956 this same handbag was renamed “the Kelly” when it became one of Grace Kelly’s favorite bags. In February 1955 (2/55), Coco Chanel designed her luxury quilted-leather Chanel 2.55 handbag, which was inspired by the straps found on soldiers’ bags, in order to free up her hands. In 1984, the infamous Birkin was created by Hermès who adapted another of their bags, the Haut à Courroies (originally created around 1900) to craft a bag for the actress and singer Jane Birkin. The Birkin has ever since become one of the most desirable, most extensively recognized bags ever made.

Devised in the 1990's, the term “It Bag” became prevalent with the rapid growth of the handbag market. Fashion houses strove to come up with a distinctive, recognizable flag-ship design which would become that season's must-have bag, likely to sell in large numbers. This required skillful marketing and endorsement by the fashion media. And obviously, as with “the Kelly”, one of the most sought after marketing advantages was for the bag to be seen being carried by a celebrity.

The 2000's

Since the 2000’s, fashion trends have been driven more and more by social media. An “It Bag” goes viral when pictures of celebrities carrying a particular brand are shared by fashion addicts, leading to a huge demand in the latest handbag design. But often this demand these days is short-lived and superseded when the next trend goes viral.

Designers such as Bottega Veneta, Chanel, Fendi, Hermès, Prada, Gucci, Vuitton, Chloe, Mulberry continue to be seen as creators of status bags. But the release of many of their newest designs creates a waiting list for orders, leading to impatient clients to knowingly buy fake copies. As well, must-have bags for the current season are often targeted by thieves and stolen to order, to be sold for considerably reduced prices to folks who want an “It Bag” without paying the true price for it.

In the 2000’s many inexpensive more contemporary brands moved into the market making designer handbags more affordable. But as the market for handbags becomes more crowded and competitive, some luxury brands are taking a more balanced, diversified approach to their product categories, rather than focus on an “It Bag”. They are looking at the more high-margin, low cost-per-wear status symbols that have been increasingly driving the luxury goods market for the last decade.

Despite the fact fashion accessories (which are typically made up of handbags) still accounts for almost 30 percent of the total luxury market, the handbag sector is now producing fewer and fewer “It Bag” designs. Many brands such as Valentino and Vetements, do not even have an “It Bag”.

Very few bags now earn iconic status symbol rights such as the Birkin and Chanel 2.55 did.  The lifecycle of a handbag is now shorter and brands are relying less on an “It Bag” to drive sales. Many brands are relying more on their “ready-to-wear” clothing categories as well as shoes and jewelry as revenue drivers.

Now-a-days, fashion consultant, Julie Gilhart says that there is a greater trend to build a full brand, and there is a shift in thinking away from a depending on an “It Bag”. She says “What's a best seller now may have a short life, and then what? Smart brands know to grow holistically and broad. They have to build a business through all categories.”

 An "It Bag" is an investment 

If you are fortunate enough to own an "It Bag", be thankful because it is a good investment.  They do keep their value and can even increase in price. The most expensive bag to ever sell at auction was a Birkin by Hermeswhich sold for over US $200k. It is made of bright pink (fushia) luxury crocodile skin and features an 18 karat white gold clasp and lock which is encrusted in real diamonds. The Birkin bag, which was designed in 1984 by French fashion house Hermès and named after the actress Jane Birkin, is seen as a fashion classic.