In a research conducted by CPP Luxury Industry Consultants Ltd between December 2011 and February 2012 in six Central and Eastern European countries, pricing of international luxury branded goods (fashion, accessories) are more alligned with Italy and France compared to the past 3 years. CPP’s research included Serbia, Romania, Ukraine, Poland, Czech Republic and Russia, with a focus on international luxury fashion and accessories brands with mono-brand store representation. The comparison was made with flagship stores of the same brands in Paris and Milan as well as with the e-commerce websites of the respective brands.
It is for the first time in over a decade, prices of the same luxury branded goods are even lower than at flagship stores in Milan and Paris as well as lower than prices of the brand’s online store. The lower pricing is driven mostly by franchisees which have found themselves competing with the online stores which deliver in the respective markets but also by the fact that some retailers have chosen to calculate a lower currency exchange rate.
The ”myth” of higher prices at franchised stores compared to flagship stores in the major capital cities, especially Paris and Milan has been fading in the past three years. Although this alignment process of prices might have cut from their profits, retailers have realized the importance of ”bringing back” local customers who used to buy mostly abroad, pricing being one of the key determining factors.
Romania and Poland lead in the ”pricing alignment”, clothing and leather goods of major international luxury brands being no higher than 5% in comparison with the pricing of the same goods at the flagship stores of the respective brands in Milan and Paris.
Despite its non-EU status, Serbia has also seen a decrease in pricing for luxury branded goods, more line line with pricing at flagship stores in Milan and Paris. Burberry, Hugo Boss, Max Mara and Emporio Armani mono-brand stores in Belgrade, Serbia are now at most 5% higher than the flagship stores of the same brands in Paris and Milan, compared to the same period of 2012, when prices would be up to 10% higher.
At the opposite pole, pricing at the luxury mono-brand stores in Czech Republic are now up to 15% higher than the same goods in the flagship stores in Paris and Milan, compared to the same period a year ago. Most retailers in Prague blame the currency exchange and the lack of flexibility of prime retail real estate owners to adjust rents according to market conditions, for the increase in prices. Czech Republic’s luxury market has been directly affected by the steep drop in wealthy foreign travellers, especially from Russia and Asia, otherwise, the market being oversupplied for the buying potential of locals.
The ongoing financial crisis has been having a negative impact on Ukraine’s luxury market which dropped by up to 20% in 2011 compared to the levels of 2007. This has put pressure on retailers (the majority of the top international luxury brands being represented in franchising) which have maintained a 20% higgher pricing strategy for luxury branded products in comparison with prices of the same products at the flagship stores in Milan and Paris. However, the economic crisis has also brought a cut in travel spending for the wealthy, therefore, some of them returning to buying locally rather than shopping abroad. Unlike Russia, which has seen a boom in low cost and charter flights to major destinations such as Dubai, London, Paris, Ukraine’s capital of Kiev is still mostly connected with the major shopping capitals by national carriers which have maintained a relatively high pricing policy.
In direct competition with Dubai, Milan and Munich, major luxury brands most of which now operate directly in the Russian capital, have been successfully employing a strategy of ”compensating” for the up to 20% higher prices (due to huge taxation and logistics costs) by providing Russians with an improved customer experience equivalent to the flagship stores in the major international luxury shopping capitals. During the past 5 years, the transition from franchising to direct operations by most of the top international luxury brands present in Russia has had an indirect positive effect on brands which have remained in franchising operations, the bar of customer service and experience being raised for the entire market. Unfortunately, this is not yet the case for the major cities outside Moscow, such as St Petersburg or Yekaterinburg which still maintain a higher pricing policy without an improvement in the customer experience. Mention should be made that there are several brands which continue to operate directly in Moscow but through a franchising operation in the cities outside Moscow.
The luxury brands which lead the top of pricing alignment in Central & Eastern Europe are Gucci, Hugo Boss, Ermenegildo Zegna and Burberry.
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