The owners of American and European luxury brands have recently learnt that all means are permitted in war. Due to reciprocal duties on goods, tariffs of 145% are being imposed on goods exported from China to the USA. The Middle Kingdom did not limit itself to the introduction of retaliatory tariffs. The TikTok platform, a Chinese social media app with a global reach of over 1 billion users, has developed a trend that at first glance resembles a grassroots mass initiative by Chinese citizens. Short videos are posted on TikTok that allegedly reveal the modus operandi of luxury brands such as Dior, Prada, Hermès, Chanel, Coach, Ralph Lauren, Apple, Michael Kors, Nike and many others. These companies are said to manufacture their products entirely in China, adding only logos, price tags and, of course, making sky-high profits in the official country of origin, such as America or France. The authors of the videos point out that, for example, a handbag selling for $38,000 only costs $1,300 to make, which should encourage Western customers to buy directly from the manufacturer rather than overpay at an expensive salon in Paris or New York. As you can imagine, these videos are gaining huge popularity and causing controversy. What’s surprising about the above trend?
Firstly, the videos show executives of Chinese factories and other not at all random people who probably could not make a spontaneous decision to record and publish such material on behalf of the company. Secondly, the popularity of this movement has been used by manufacturers of knockoffs to sell them even better. Thirdly, many luxury brands sign agreements with their contractors in China that oblige them to keep this collaboration secret. Fourthly, if a factory actually produces goods for a European luxury brand, how much will its sales fall if that brand ends all its co-operation with it due to the disclosure of company secrets? What will you sell and to whom?
I absolutely do not deny that many western brands use cheap Chinese production to increase their huge profits. Quality does not always go hand in hand with price, and often you only pay for the logo. However, you cannot assume that this is the case in every instance. Sometimes, for example, it is the pre-assembly of a particular product that has to be completed under completely different conditions and using different methods in a completely different country. Let’s also not forget that Chinese contractors do not bear the costs of product development (e.g. designers, electronics), which are often the highest in the entire cycle. Incidentally, experts in the luxury goods market claim that more is bought than the product itself. They talk about emotions, history, a sense of belonging, unique shopping experiences and brand philosophy. It is likely that the target group for these products will find such an argument convincing. Of course, this situation will force manufacturers to be more transparent about the supply chain, which is beneficial for consumers.
