By Kathy Chu 

After years of flooding luxury stores from New York to Paris to snap up handbags and watches, Chinese consumers are shopping more at home.

High-end names such as Cie. Financière Richemont, Burberry Group PLC and LVMH Moët Hennessy Louis Vuitton are experiencing a surge in sales in mainland China as the government taxes overseas purchases and some luxury brands lower prices in China to bring them closer to those elsewhere.

The yuan's depreciation and recent terrorist attacks in Europe are also deterring Chinese from traveling internationally, boosting luxury purchases on the mainland, some analysts say.

The shift in spending by the Chinese, the world's top buyers of high-end goods, is an opportunity for luxury brands on the mainland but also a risk to their business elsewhere in the $267 billion personal luxury-goods industry.

Beijing has taken steps in recent years to bring consumption--and tax revenue--back to China. In 2015 and again in early 2016, the government cut import duties on products including cosmetics, shoes and clothing. And in April last year, China raised taxes on overseas purchases; rates vary depending on the type and value of the goods, but the tax applies to foreign goods bought online as well as those carried into China.

"The price difference has narrowed," said Qi Fei, who bought an Yves Saint Laurent handbag in an upscale Beijing mall recently for about $1,600, around the same price she could buy it abroad. "The advantages of luxury stores in China are becoming more and more obvious." Purchasing goods within China simplifies after-sales services such as warranty and repair, the 27-year-old said.

In constant dollars, sales of personal luxury goods in mainland China rose 4% in 2016 and will increase at an even faster pace this year, predicts Bruno Lannes, a Shanghai-based partner at consulting firm Bain & Co. Those sales slipped slightly in 2016 using annual average exchange rates. At the same time, Chinese spending on luxury goods world-wide, including China, fell for the first time in 2016, at both annual average and constant exchange rates, amid a multiyear crackdown on corruption by the Chinese government.

"What you had is a repatriation of Chinese consumption toward mainland China," said Bernard Arnault, chief executive of LVMH, in late January, as sales there surged in the second half of 2016.

Richemont reported in January that mainland China and South Korea helped to boost its Asia-Pacific sales by 10% in the third quarter, double its overall sales growth rate. The company's jewelry, watch and accessory brands include Dunhill and Cartier.

Richemont, whose profit and sales plunged in the first half of the year, has credited some of its growth in mainland China to what it calls a "fair pricing policy" initiated in 2015, in which it prices products in the same range world-wide, before accounting for local taxes and duties.

Chanel, which in 2015 became one of the first luxury brands to make prices the same around the world, said its policy improves the brand's consistency, spreads out sales between countries and deters gray-market goods, which are bought at cheaper prices in one country then sold without the brand's approval in another. A Chanel lambskin handbag from the brand's current collection is listed on its website for the same price globally: $4,700.

Pricing disparities remain, though. A study by consulting firm L2 Inc. in mid-2016 found that customers in China still pay 25% more for Louis Vuitton than elsewhere in the world. LVMH declined to comment.

Richemont's Chloe prices a suede calfskin bag at about 14,000 yuan (about $2,035) in China, nearly a third higher than its price in the U.K., 9% higher than in Japan and 5% more than the U.S. at current exchange rates. Chloe declined to comment.

U.K.-based Burberry, whose mainland China sales increased by a high-single-digit percentage in its fiscal third quarter, said last month that it adjusted prices in November in Hong Kong and mainland China, where it aims to keep prices within 15% of those at home.

"Luxury brands are trying to balance their pricing to maximize what they can get from the Chinese consumer," said Danielle Bailey, head of research in the Asia-Pacific region for L2.

Many brands overexpanded in mainland China in recent years and some have closed stores since then or scrapped plans to open new ones due to weak demand. But the pickup in spending, if it continues, could lead high-end names to consider reinvesting on the mainland, said Luca Solca, head of luxury goods at Exane BNP Paribas.

While the Chinese stock and real-estate markets are recovering, boosting consumer confidence, some analysts and company executives say it's unlikely that China's economy will return to double-digit growth rates. The economy grew 6.7% last year, according to official data.

In October, as LVMH reported that purchases by Chinese nationals on the mainland and elsewhere boosted year-to-date sales growth, Chief Financial Officer Jean-Jacques Guiony warned that stronger spending by the Chinese could be short-lived.

While disposable income is expected to grow in China, not everyone will be able to travel, making it important for luxury brands to be able to attract Chinese shoppers in their home country, said Andrea Casavecchia, the head of Asia for Italian luxury shoemaker Santoni.

"China is a challenging market, but it's the future," said Mr. Casavecchia, who expects mainland China to become Santoni's second-largest foreign market after the U.S. by 2020. "China is the golden land."

Pei Li and Eleanor Warnock contributed to this article.

Write to Kathy Chu at kathy.chu@wsj.com

(END) Dow Jones Newswires

February 05, 2017 08:44 ET (13:44 GMT)

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