Читать книгу The Road To Luxury - Blanckaert Christian - Страница 11

On one hand, the luxury industry is said to be recession-proof2 due to the noncyclical nature of the industry. This belief may be attributed in part to the change of consumer behavior in the United States and the broadening of the luxury consumer base, fueled by an increase in the disposal income of high-net-worth consumers. Another argument in favor of noncyclicality was the fact that luxury customers are generally the happy few who are not affected by economic crises and continue spending at the same levels.3 Both arguments, to a certain extent, are supported by the quick recovery of the luxury industry after the financial crises of 2001 and 2009. Figure 1.3 illustrates that over a 14-year period, the main players in the luxury industry could weather the effects of crises.

Figure 1.3 Revenues of the Main Players of the Luxury Industry, 2000–2013

On the other hand, democratization of the luxury goods industry whereby companies created accessible products, the noncyclicality of the luxury industry, is a questionable proposition. In the recent recession that started in 2007, the picture looked grim for the luxury industry. Bain & Company estimated that the sector lost 10 percent of its revenues in 2009. Reports from Bain & Company and Italian luxury goods traders Altagamma after a close watch indicated that luxury sales slumped to 5 percent in 2013 as compared to 13 percent in 2011 due to the debt crisis, which has currently gripped Europe since 2010. The growth of foreign tourism shopping in Europe slowed down to 18 percent in 2013, compared to 28 percent in 2012. Figure 1.4 depicts the effects of these two recessions, showing that the luxury firms are not immune to the slowdown in growth and revenue that follow each crisis.

Figure 1.4 Revenues of the Main Players of the Luxury Industry as a Percentage of the Previous Year, 2000–2013

The economic crisis had deeply affected the luxury world, but in a way that was somewhat predictable. For many years, the luxury brands were undergoing constant growth, and no one thought they could be affected by a world financial crisis. They thought quite the opposite, in fact. The general opinion was that these losses would soon be overshadowed by the perennial story of growth and profitability.

The sales figures from countries across the globe were interesting to observe in the light of the above discussion. In fact, the crises of 2009 and 2010–2013 helped us to better understand the luxury world. Most interesting was the behavior of consumers. Countries that were considered to be the homes and strongholds of the luxury planet were affected.

Japan

Japan was a star of luxury for 25 years, beginning in the 1980s. It represented 30 percent of sales for Hermès in 2005, at least 35–40 percent for Louis Vuitton, and up to 41 percent of the worldwide luxury goods market. Japan had been always a place where luxury shopping was considered to be an occasion. At the time of the global financial crisis, Japan represented about 50 percent of the clients of all key luxury brands. Up until 2005, luxury companies forged their futures with Japanese consumers in mind. For example, 94 percent of Japanese women in their twenties owned a Louis Vuitton handbag; 92 percent owned products from Gucci; more than 58 percent owned a Prada item, and over 51 percent possessed a product with a Chanel label on it. Traditionally, this market had been impervious to recession. Most major companies like LVMH, Hermès, Richemont, Kering, and Coach made supernormal profits in Japan until 2009. Two local crises hit the Japanese economy: the earthquake and resulting tsunami and the Fukushima nuclear meltdown.4 Since Japan accounted for a significant share of global luxury sales, the shares of LVMH, Hermès, and Burberry tumbled when the crisis hit.5 Overall, the Japanese market retreated between 20 percent and 30 percent. LVMH witnessed declining sales by 6 percent. Salvatore Ferragamo reduced prices of its 42 items by 7 to 10 percent for the first time since it began operations in Japan. Chanel held a sale of clothes and other items. Distributors such as Seibu and Sogo merged to form Millenium, Isetan merged with Mitsukoshi, Takashimaya merged with Hankyu, and Daimaru merged with Matsuzakaya to survive. Clearly, Japan became a nightmare for most luxury brands, as consumers saw the stock market at a five-year low and hoped to reduce their consumption to prepare for rainy days in the future. For the first time in history, 2009 showed the decline of the luxury market in Japan. Given the aftermath of the tsunami and nuclear disaster that rocked Japan, it is not surprising that people did not feel like shopping.

In 2014, Japan registered between 5 to 16 percent of luxury sales. Chinese customers now account for about 15 percent of former Japanese sales. Does that mean that Japan has become a nightmare? It does not seem so. It is still, more than ever, a key market: stable, mature, and full of promise. Based on an interview about sales outlook, done by McKinsey & Co., on 2 °CEOs of luxury companies who were based in Japan, 75 percent were optimistic about the future prospects of Japan's luxury market. It would have been a mistake to consider that the market was lost. For brands like Van Cleef & Arpels, Cartier, Bottega Veneta, Hermès, Prada, Chanel, and others, Japan remains a strong and vital market. It is still the world's third-largest luxury market outside Europe, after the United States and China.

Europe

During the global financial crisis, Europe – the birthplace of luxury goods – surprised everybody. Europe had witnessed 40 percent or more of all luxury sales, but after the crisis it showed its resilience, with an average decline of only 5 percent. Compared to Europe, Asia-Pacific, mainly due to China, showed a growth of 20 percent. The luxury market in France in particular did not decline. Old Europe was again a market to cultivate during the period of financial turmoil. Brands that were present in small European cities reaped the benefit of their regional strategies. Hermès, Chanel, Louis Vuitton, Armani, and Tod's were among the companies who were not significantly affected due to their sales in Europe. This proved that Europe has been and still is the most important market for luxury, and may continue to remain so, for two reasons. First, the cultural heritage of Europe is linked to luxury. Europeans love luxury goods and have the buying power to be the most stable luxury goods consumers of the world. Second, Europe remains the number-one destination for tourists, France in particular. It meant that though the luxury business was going through the global financial crisis, the continuous flow of tourists who spend a considerable proportion of their budget buying luxury goods offset the effect of the crisis. For example, the Chinese spent nearly 1,500 euros per person annually. At the Galeries Lafayette, 60 percent of the total business came from tourists, and within this 60 percent, between 60 and 80 percent are Chinese tourists.

China

Asia overall, including Russia, China, India, Hong Kong, South Korea, and the Middle East, came to the rescue of most luxury brands after the global financial meltdown. During the recession phase, China became the winning horse that reported a growth of 20–30 percent for most luxury brands. Richemont was one brand that relied heavily on Asia Pacific consumers to help buttress its sales. The same held true for Hermès, which also sold heavily in Asia. They were saved, although the crisis affected all the actors in the luxury sector, at each level. China alone during this period could show the difference it made to the top line of a luxury company. When the distributors in the United States and Japan nearly collapsed, when Neiman Marcus reported a 20 percent decline in sales, stores in Beijing and Shanghai were reporting sales growth of up to 30 percent. Businesses in mainland China, Hong Kong, and Macau were flourishing.

China emerged as the luxury market in which to have a presence, a market that didn't exist 10 years before in 2003. China saved many brands from sliding into the red. During this period, Kering witnessed double-digit growth in China. Richemont and Zegna, which were otherwise losing money, enjoyed healthy growth in China. Brands like YSL regretted not maintaining showrooms in mainland China. The Ferragamo family trusted Chinese women to continue demanding statement handbags, which they continued distributing despite an otherwise gloomy environment. Some brands, on the other hand, were apprehensive about the Chinese miracle. Patek Philippe was cautious with China, as it felt that the country could impose sudden import duties or levy taxes, which could destroy the business instantaneously. Despite the deepening of the European debt crisis and the slowdown of China's economic growth in 2013, China represented around a quarter of global luxury purchases.

United States

The American market represents a great untapped potential for European luxury brands, as only 17 percent of the luxury goods sold in the United States are personal luxury goods, compared to 47 percent in Italy, 25 percent in Japan, and 25 percent in China. However, it is worth noticing that the U.S. market alone drives 70 percent of Ralph Lauren's and 55 percent of Tiffany & Co.'s worldwide sales, whereas this market accounts for only 15–25 percent of the worldwide sales of most European brands such as Hermès. Moreover, it can be observed that luxury sales are high in areas with a large Latin American population due to this group's appreciation of personal luxury goods. Thus, the American market offers a promising outlook for European brands if they manage to exploit the potential.

The U.S. market over the years was always open to brands that had the capacity to invest, to persevere, and to face conflicts. It remained a difficult market that required a lot of time, energy, and resources. Luxury brands suffered in the United States. For example, Dior went in the wrong direction, running after licenses, opening everywhere, and lost money. Fred Segal, which opened in Los Angeles, could not meet its overhead costs and was acquired by LVMH. But the U.S. market has strong potential in the long run in many cities besides expensive centers such as New York, Los Angeles, and Miami. This is the reason why luxury brands should ask the question, “To be or not to be in the United States” – Leonard Fashion answered “Not to be.” They were right. Hermès, LV, Cartier, and Chanel succeeded in the United States, competing with Coach, Ralph Lauren, and Tiffany & Co. The U.S. brands had hundreds of stores, a very different tactic from the European shopping experience. Americans do not yet have the taste for luxury; they have a long way to go, and apart from two or three main cities, the interior of America is not ready to understand the French or the Italian luxury world. It will take time and effort to develop a customer base. It is, however, a market full of promise. All the factors to succeed in the United States are there. It is a stable and rich country, and the only country where a great number of women are millionaires.

Africa

The Northern African market also experienced crises. The most notable local crisis was the Egyptian revolution in 2011 and the Arab Spring. Burberry and Ferragamo stores were closed permanently, while the companies that remained open watched as sales declined up to 70 percent. One reason was that wealthy customers were the first to leave Northern Africa during the unrest. This was corroborated by the fact that the occupancy in luxury hotels such as the Four Seasons, Kempinski, Hyatt, and Sofitel dropped by 30 percent. However, due to democratization of the luxury industry, perfume sales in Africa were increasing at a rate of 25 percent, due to licenses from Gucci and Dolce & Gabbana. It has also been predicted that distributor sales for perfume will reach $100 million in the coming decade. Niche brands have started to make their mark in Africa. For example, Vlisco, a luxury textile brand from Holland engaged in textile wax, has long been successful in Ghana. Soon the entire continent of Africa will be a promising market for luxury brands.