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THE LUXURY MARKETS

Rolls Royce

Photo by Nick Fewings on Unsplash.com.

THESE ARE THE BEST OF TIMES FOR SOME BUT NOT ALL
IN THE LUXURY PRODUCT BUSINESS

 

By most accounts, luxury brands head into 2022 in better shape that they could have, or even should have hoped. The COVID pandemic, which it one stage seemed to threaten the sale of high-end, non-essential products, such as jewelry, raised anxiety levels in 2020, but not in 2021.

Last year, global sales of luxury goods recovered fully from where they had fallen one year previously, and the price of share of publicly owned brands rose as much as 40 percent year-on-year, reported the Financial Times, outperforming the wider equity market for the sixth consecutive year.

In some respects, the luxury brands gained directly from the crisis. Companies benefitted from renegotiated store rental agreements, concluded during the period of lockdowns, when commercial property holders were especially nervous about the long-term future, and, in the case of product categories like jewelry, from the almost total crash suffered by competitors in the travel and tourism sectors.

Luxury brands in China also benefited directly from the crisis, which kept at home many of the consumers who in years gone by had preferred to spend their disposable income on jewelry and other luxury products while traveling abroad.  

Writing in an article published on the Miss Tweed website, Astrid Wedlandt spoke to Erwan Rambourg, global head of consumer and retail equity at HBSC in New York, who referred to the recent Chinese phenomenon as “staycationing.”

Louis Vuitton bag

Photo by Laura Lucas-Hig on Unsplash.com.

Luxury demand is clearly not worse off when people stay at home, Rambourg said. “You might need a few more stores in the U.S. and China (notably Hainan),” he said, “but 2022 should be again impressive business-wise despite lackluster travel trends.”

Rambourge does not expect the Chinese to resume traveling in large numbers before 2023.

SMALLER BRANDS ARE HAMSTRUNG

But it has been the larger brands that have really gained during the crisis. Smaller companies found themselves hamstrung during the past two years, and not only because of reduced foot traffic in 2020. They also experienced difficulty involved in establishing and maintaining a public profile when consumers were keeping out of the shopping malls.

The larger brands were better able to compensate by making massive investments in new technologies, consolidating their foothold in the established markets and wining new aficionados in places where to date they previously did not have a physical presence. Thus, whereas once a consumer would need to travel to a major retail hub in order to acquaint themselves with companies like Tiffany & Co., Chanel or Cartier, today they able to do in familiar surroundings of their homes.

Geography is another factor separating the strong from the weak. Chinese tourism has for much of the past ten years been a mainstay of the European luxury market, but it has largely dried up in 2020 and 2021, and that country’s tourists stay at home. Slow vaccine adoption in Japan stifled that country’s luxury brands, according to the Financial Times.

CHANGING BUSINESS PARADIGMS

Bain & Co. reported that, during the pandemic, the online trade’s share of luxury sales grew from 12 percent to 22 percent, and it could reach as much as 30 percent by 2025.

This is changing business paradigms, with major brands adopting consignment models, which work better in sales environments where the inventory does not need to be physically close at hand. IT is all happening at the same time that the luxury retailers are improving their websites, achieving better control over inventory, pricing and customer relationships.

Ironically these retail-friendly business model have been common in the jewelry sector, especially where diamonds are concerned. Memo or consignment sales have been a substantial part of the business from the early 1990s, and the growing use of online aggregator applications, which enable retailers to list merchandise that they will purchase only after a sale has been made, enables jewelers to operate with minimal stock in their inventory.

But that’s only part of the equation. Luxury shopping, brand specialists will tell you, needs to be experiential, providing the consumer with a thrill that goes beyond the basic ownership of the luxury product. In jewelry that traditionally was provided by the maison, where retailers created physical environments that provided customers the full brand experience.

In the online world, newer technologies like virtual reality can provide the brand experience, but here to the more established firms have a distinct advantage. These solutions do not come cheap, meaning more smaller and medium sized players may be left at the wayside.

DIOR ring

Photo by Laura Lucas-Hig on Unsplash.com.

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