It turns out we can say goodbye to an old and reliable global trend before the pandemic. The days when China bought all these jewels are over for now. Whether it’s Louis Vuitton, Burberry or TAG Heuer, it’s time to look for new customers.
Less than 12 months ago, Bain and Company has been reporting on the luxury market. Here are your predictions at that moment:
“Personal luxury goods would see their sales grow at an annual rate of 3% to 5% until 2025, and the length of the market would expand from $310 billion in 2019 to $425 billion over five years. By 2025, Chinese consumers will account for 46% on the world market, up from 33% in 2018, and make part of their home purchases in China, up from 24% in 2017. »
This is what this market looks like right now. Choose a place, and that’s pretty ugly thanks to the fall of the Chinese call and pandemic that in Wuhan late last year.
Burberry, which generates a giant component of its turnover thanks to the tourists who spend a lot, has suffered basically European and American sales. Sales in China took a step forward in this quarter.
Capri Holdings, Versace’s parent company, Michael Kors and Jimmy Choo, recorded a drop in sales to $451 million in the first quarter from $1.35 billion last year. Michael Kors’ sales fell 68.7% to $307 million.
Like manufacturing, China remains the center of the market. When China falls, everyone does. It’s an absolutely unsustainable business style to make China your bread and butter.
The market is shrinking. This is now an opportunity for sharks to buy big brands. Everyone looks at Generation Y and its tastes. And some sectors are better than others. Louis Vuitton: well. Watchmakers: very good.
The Chinese impact
According to the Altagamma Foundation, Chinese citizens account for about 50% of the demand for Swiss watches and about 35% for the rest of the luxury sector. Unsurprisingly, Swiss watch exports have fallen by 33% since the beginning of the year, the largest and largest decline in the last 20 years. Even in 2009, in the midst of the Great Recession, it fell by 23%.
The hardest blow was final at the borders. Hans Peter, the former CEO of one of Switzerland’s largest jewelry and luxury retailers, Hans Peter, estimates that the effect on the industry, which derives from part of its sales of wealthy Asian tourists, basically China, could simply spread.
“I’m convinced the Chinese will eventually come back,” he says. “The question is … will they continue to buy as they did? It is quite imaginable that the Chinese government will inspire its citizens to buy more and more luxury goods at home.”
Astrid Wendlandt, from the e-book “How Luxury Conquered the World” and a professor at sciencePo school in Paris, agrees: “They have duty-free zones, and then there’s Hainan, the new tax-free shopping mecca for the Chinese.” “
Giants, like LMVH, treat it as a sign of shrinking in Europe and the United States and expanding into China, but it’s a tough strategy. Peter says that “not all brands are in a position to succeed in China.”
Peter has the outstanding Parmigiani Fleurier, a high-end Swiss watchmaker, as one of those who adapts to immediate changes.
Beyond China
Davide Traxler, Parmigiani’s new CEO, luxury watch corporations will now have to bridge the gap between old Swiss heritage designs and address new audiences outside the Western world of Wall Street and senior management and in new fashion-conscious markets. Their “crossover” strategy for the new models appears to have worked on the basis of a study through the Digital Luxury Group, which ranked them among the 3 most pandemic-sensitive luxury brands.
Last year, they introduced the world’s first wristwatch with a perpetual Islamic calendar, “Hijri” and Arabic calligraphy to attract luxury buyers from the Middle East. Its new casual line called Tonda has watches priced at more than $20,000, but market analysts say the new taste is attacking rich “disruptors” and “entrepreneurs” that “old money” and the multitude of investment bankers.
They also pointed to new trends, especially women. Expensive watches with fine jewelry have long been made to impress women, but were bought through a man as a gift. Traxler is betting on changing things with women who buy watches for themselves where it’s most convenient and comfortable: online or in luxury fashion stores.
“The industry wants to realize that the days when luxury watches were toys of ‘aristocratic children’ for others who reported their social prestige and good fortune are over,” says Traxler, who was hired in 2018 to help the company succeed in its recovery.
Luxury lines are turning to experiential branding and, equally importantly, environmental issues. We’ve all noticed teens with $4 Ocean bracelets in recycled plastic. It’s not a luxury, but it’s a story. Add a sense of luxury to something like this and sell it for $2,000 and other people will swallow it.
According to Matter of Form, a London-based advertising company targeting high-end customer products, the experiential luxury market is developing faster than the non-public luxury market.
China is Porsche’s largest singles market for the third year in a row, with the recent world premiere of the Porsche Macan in Shanghai. The Porsche Experience Center Shanghai, the sixth in the world and the first in Asia, opened in 2018. Potential Porsche buyers can check the eBook on WeChat, and on-site there are racing simulators, off-road tracks and the ubiquitous chic restaurant, and everything is geared towards sharing the fun with your friends’ social media posts.
In the past, It has worked for Tiger Woods to wear his watch (or in parmigiani’s case, Prince Charles). The market is too full now. The influence of celebrities could also have peaked.
For luxury executives like Traxler, there are quicksand underfoot.
“What motivates luxury is a thing of well-being. If you’re very pessimistic about the world, you don’t go on to luxury shopping,” says Wendlandt.
The CEO of the former Gobelin believes that in a world of uncertainty and economic decline, the answer is to appeal to the “welfare” of other people of social and environmental customs.
“Brands want to be even more powerful by telling their stories, providing genuine values, understanding the visitor and their existing sensitivity to transparency, fair industry and other issues,” says Peter.
For brands that are primarily promoted in local markets, the pandemic can have a short-term impact. Global conglomerates such as LVMH, Kering and Hermes have overtaken Richemont, and small brands have struggled. Large teams have the monetary resources to cope and are more diversified.
Of course, tourists are absent from the action. Retail travel sales are a driving force for the luxury industry as a whole. In Switzerland, about 50% of total sales come from Asian buyers.
A shock is expected in the luxury retail sector. The same goes for luxury brand bankruptcy. The big question for this primary market that employs thousands of people around the world is how long the scenario will last. And once it’s over, will the Chinese still have the same shopping habit as before the crisis to recover?
I spent 20 years as a journalist for the most productive in the industry, adding as a member of the Brazilian-based staff for WSJ. Since 2011, I have focused on business and investing in