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Luxury brands are back in China, but changed forever by coronavirus

A few luxury goods companies have revealed that China’s weekly crashes this spring, and some The analysts trend of “revenge spending” – the release of suppressed demand without people having to stay at home.

This happened despite a 40% drop in Tiffany’s global net sales in May. “Our business performance in mainland China, which is the first market affected by the virus, shows a strong recovery,” CEO Alessandro Bogliolo said during the company’s earnings release Tuesday. Said.

Others repeated similar thoughts. Burberry (BURBY) She said that last month’s clothing, bags and accessories sales in China were “far ahead of the previous year and continue to show improvement”.
And Swiss jewelry and watchmaker Richemont Pointed to China As a bright spot in recent weeks, “strong demand” has been reported in the results announcement last month since the opening of 462 boutiques in the country.

“The data show that China is in recovery mode,” Bernstein analyst Luca Solca said in a note released late last month. Researchers at his firm have created a “backlash index” to monitor consumer confidence.

‘Revenge spending’

According to Claudia D’Arpizio, partner of Bain consulting firm, due to the recent increase, China may be the only market where luxury retailers are returning this year.

“In fact, it was very, very positive,” Edgardo Osorio, founder of Italian shoe brand Aquazzura, told CNN Business. “China has always been, but especially more than ever, the fastest, [responsive] customers. ”

Chinese customers may be spending more money on their homes because they cannot travel easily. According to analysts, two-thirds of Chinese customers’ sales are usually outside China.

But most of the world is still dealing with pandemics, limiting foreign travel and the opportunities people have to spend a lot of money on.

“They can buy a Chanel bag instead of going on vacation,” said Fflur Roberts, head of luxury products research at Euromonitor, adding that there is an increase in spending in other countries, including South Korea. “We see that the market has returned to a certain degree,” he said.

Shoppers are preparing to enter a Louis Vuitton boutique in Seoul in May.

Some shoppers may also be after the “psychological impact of returning to normal life”. D’Arpizio.

The recovery in China is important because shoppers are vital to the global luxury market. According to Bain, they make up 35% of all sales worldwide. Five years later, the counselor’s estimates show that this may be about 50%.

But the industry still hurts

But success in China is only part of the story. Sales of personal luxury items, including bags, shoes, and clothing, are still expected to be a big hit, as customers elsewhere stay at home and continue to shop for luxury in favor of basic purchases or cheaper, unbranded items.

Bain predicts that the global sales of these items could drop by 35% this year, and the expected revenue will be 180 billion to 220 billion euros (about 204 billion to 250 billion dollars). This was compared to an estimated 281 billion euros ($ 319 billion) received last year.

Global brands accepted printing. Last week, for example, LVMH (LVMHF) announced to investors that its board was meeting for reconsideration $ 16.2 billion purchase Tiffany flag in the light of the epidemic.

“Coronavirus forces companies to rethink almost any business model,” said Roberts.

A closed Louis Vuitton store in Wuhan in March. Its parent company, LVMH, told investors in April that with the reopening of the market, sales increased for most of its brands in China.

The recent leap in sales within China is “globally not balancing the loss of sales of Chinese consumers’ luxury brands,” says D’Arpizio. “Overall spending from China is far below last year.”

It is not expected to take too long for “revenge spending” to increase. “We see this as a kind of temporary effect,” D’Arpizio said.

What the industry really needs is tourists from China or elsewhere. “We expect the journey to be the last driver to return to normal. For months, it will probably take more than a year.”

How we shop has changed

To cope with the new reality of heavily serving the domestic market, companies will need to adjust their strategies and find out how to reach more local customers.

China already offers a plan to brands. Even before the epidemic, shoppers were spending money closer to home From centers like Hong Kong mass protestsand brands reduce the price gap that makes their products cheaper elsewhere.
Chinese customers spend more money at home. Tiffany got big plans for cash in

This led companies to open more stores in mainland China, collaborate with local artists, and partner with Chinese players. This trend seems to be accelerating.

For example Burberry, Tencent (TCEHY) It will be operating later this year in a new online store in China.
The approach can be applied elsewhere. Burberry CEO Marco Gobbetti last month called the plan a “core testing ground” that could help their teams understand how to better serve customers in the future.

According to analysts, brands may need to adapt bids in each market as long as travel is limited.

This is a pivot for businesses that typically rely on travelers’ cross and do not always spend significant time developing strategies for countries.

“This is also a big change for shops that are really more intended for tourists in Europe – a shop in Paris or a shop in Milan,” D’Arpizio said. Now “growth will come from local customers.”

On the first day of the store, which will be reopened in Paris in May, assistants who welcomed Chanel to Galeries Lafayette.

Boutiques will stay here

Some luxury brands that usually stand out in e-commerce are also rethinking their strategies.

According to Euromonitor researcher Roberts, for example, Swiss watchmaker Patek Philippe recently started selling watches online for the first time due to the crisis. The company did not respond to the request for comment.

While some brands say that the temptation to go to a store in person will never disappear soon, this means a subtle change.

“For me, my boutiques, I decorate them like my home,” said Aquazzura boss Osorio. “You need a physical asset because you want the end customer to appear and understand [the brand]. “

Brands also see stores as an opportunity to “gain visibility”, according to D’Arpizio. So companies said they would continue to invest in stores at the airports, even if no one can visit at the moment.

An Aquazzura store in Sao Paulo, Brazil.

As the challenges increase, traditional retail has “rooted all over the luxury world”.

He predicted that companies could ultimately reduce the number of stores they run or the size of each shop – but they probably wouldn’t be completely withdrawn.

While defending the importance of a brick and mortar store, Osorio admitted that the coronavirus pushed him to think of his strategy in new ways.

The manager recently set out to simplify his job and decided to make only two instead of making four collections a year. He also led his team to restart the website to be more mobile friendly.

“Literally just ‘How do I get rid of this?’ An incredible two months later, I thought. Now: ‘How can I move my brand into the future?’ “Actually it was probably the most creative four weeks of my life.”

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