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Wednesday, 17 February 2021 17:03

ChicGeek Comment Luxury Local

DFS LVMH local shopping Paris

The capitals of Europe were long destinations for foreign tourists, most notably Chinese and Arabic visitors, to fill their shiny Rimowa suitcases to bursting with luxury goods. Buying a new Hermès bag on the Rue du Faubourg Saint-Honoré or a bespoke suit on Savile Row felt more authentic and could seduce many an international visitor to spend, spend, spend. 

Left - Interior of LVMH duty-free travel division DFS's T Fondaco dei Tedeschi in Venice

International travel and shopping have always been happy companions. One relied on the other, but, travel has all but stopped, and the millions who once flocked to Selfridges in London or Galeries Layfette in Paris are no longer arriving. This is prompting luxury houses to pivot and focus local. 
In its recent results, the world’s largest luxury group, LVMH, said there was a 28% decline in LVMH’s revenue for the full-year in Europe. It said while the Chinese domestic market saw strong growth it wasn’t enough to make up for the missed sales from their trips abroad.
LVMH’s chief financial officer, Jean-Jacques Guiony, said he hoped the group could grow its local European market to fill the void left by the tourists.
“Growing our local sales by one-third isn’t achievable in a year, or maybe even two, but we believe it’s achievable in a significant way,” he said. “We see no reason we should be shutting down stores, even in Europe where the recovery is less obvious for the moment.”
Traditionally, in the final quarter of the year (Q4) the majority of European luxury sales (50-60%) usually comes from tourism. In their Q4 results LVMH bullishly said, while Europe is still affected by the crisis, the United States saw a good recovery and Asia grew strongly.
In London, Brian Bickell, the chief executive of West End property company Shaftesbury, recently said overseas visitors may not return in numbers before “late 2022, perhaps not until into 2023, being realistic”.
With luxury European sales down by nearly a third, this potential sales time lag of up to two years needs filling by luxury brands in prime city centre locations, but how will they do it?
Darren Skey, Director and Founder of Nieuway Agency, says, “I think brands and retailers alike are finding and will continue to find it hard to grow their domestic customer.  Many stores in particular have been so reliant on the tourist trade, in particular Middle Eastern and Asian.  
“To swing both your marketing message and buy to suddenly attract a different customer takes time.  With LVMH, what accounts to a local audience? They have 5000 stores globally so I'm sure they can localise their sales a lot easier than a store who has 1 or 2 locations in the same country.  We've already heard from stores in the Middle East, they have seen triple digit increases from the localised customer who can no longer travel.” he says.  
“I think the changes to the buy/brand mix will be minimal to be honest.  I believe stores will be going through a process of thinning their brands as opposed to finding new brands to attract a localised customer.  Where brands are being picked up is if the brand has global appeal and can be translated throughout multiple customer profiles.” says Skey.  "Our brand, Holzweiler, has seen this first hand.  We are seeing a really strong reaction which is going to elevate it beyond its perceived Scandinavian success story.  Having products which are all encompassing is paramount.  A good quality sweat top and sweat pant is going to attract a multitude of customers, especially during the global pandemic.  But it's also important to offer products which have longevity and will work post pandemic.” he says.
Will this luxury local sticking plaster turn into a long term strategy?
“I think this will definitely be a short term strategy,” says Skey. “As soon as borders open and the pandemic dissipates (if that fully happens at all) I believe the concentration will return to the section of customers who were previously driving the turnover.  “In fact, I believe we could see a complete juxtaposition from the WFH attire with people wanting to go out and express themselves again. But, who knows when this might be?” he says.
LVMH, in particular with its DFS (Duty Free Shoppers) division was busy building huge temples of duty-free luxury shopping and hotels in Europe to service these high-spending foreign visitors. In its results, it said DFS saw a significant decline in its activity in most destinations due to the total suspension of international travel, but, new services were being developed for its local customers and online sales have strengthened.
But, how many local Venetians will shop at DFS’s hugely impressive T Fondaco dei Tedeschi overlooking the Rialto Bridge? Not to mention the refurbished La Samaritaine in Paris which was scheduled to open in April 2020. 
After nearly 30 months’ of renovation, a department store and a 5-star Cheval Blanc hotel with 72 rooms was to open its doors. It still hasn’t opened. In September 2020, Louis Vuitton gave us a sneak preview of the finished building by holding its womenswear show there. 

DFS LVMH local shopping VeniceDavid M Watts, Fashion Industry Advisor, says, “Given they (LVMH) have deep pockets it will be possible for them to refocus on local markets in Europe but not without its challenges given the continued state of lockdown all across the world. 

Right - Artist's impression of the new, yet to open La Samaritaine in Paris

“I believe they should perhaps consider developing a pop-up shop menu that will allow safe shopping, but also access to digital and commerce which will create a new hybrid. Something bricks and mortar retail was crying out for pre COVID.” he says.
So, what kind of new products or changes do you think they’ll make? “I suspect that homeware, wellness, beauty and casual wear will feature heavily.” says Watts. “Businesses are starting to review their own product offering; sleepwear, blankets, candles, pyjama dressing and track suit iterations abound.” he says.
Can you see this being a long or short term strategy and do you think it will be forgotten about post-COVID if the market and travel rebounds? “I think this new approach to product and more lifestyle focus on product development will become a core part of business. even for pure fashion brands.” says Watts.
“I believe that there will also be a return to stylish dressing with less emphasis on work/corporate and more on fun. The pandemic is forcing many of us to review our social habits and one suspects that people will develop an entirely new approach to meeting with friends and socialising and dressing habits may well change with it too.” he says.
A sales manager selling LVMH products at Harrods, who wished to remain anonymous, said even after the first lockdown locals didn’t have the same money so his brands were starting to launch ‘entry price’ items within the iconic department store. The problem with ‘entry price’ products is you have to sell more to reach the same sales volumes. The international tourists were an easy cash cow for these retailers and now they will have to work harder for less.
Central London’s luxury shops will have to work in stages. It will first have to entice even domestic, ‘local’ shoppers back to the prime shopping districts, and get them spending. Then hope the high-spending tourists follow not too long after that.
 
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Diagou reseller DiorDespite the unprecedented turbulence in the world’s retail markets the luxury conglomerates reported strong bounce back results this month. Both LVMH and Kering, two of the world’s largest luxury goods groups, reported extremely strong sales in the third quarter of 2020.

Left - Dior AW20 - Many luxury brands no longer have limits on how much people can buy

Considering many people aren’t even leaving the house, letting alone travelling, it was surprising to see that LVMH saw sales at its fashion and leather goods division rise 12 per cent to €5.9 billion. This was much higher than market expectations and saw standout performances from the Louis Vuitton and Dior houses. The LVMH results said Christian Dior “showed remarkable momentum.” while Louis Vuitton “continued to display exceptional momentum and creativity”.

Kering too reported better than expected results. Revenue in the third quarter totalled €3.72 billion, a fall of 4.3 per cent, but representing only a decline of 1.2 per cent in comparable terms. This represented a sharp rebound after second-quarter comparable sales had plunged by 43.7 per cent.

Kering’s main cash cow, Gucci, saw revenues rise sharply in the third quarter, compared with Q2, with revenue only down 12.1 per cent, whilst retail sales were down 4 per cent on a comparable basis. Gucci reported a 43.7 per cent rise in North America and a 10.6 per cent growth in Asia-Pacific. LVMH too saw strong spending and growth in Asia and the US.

What could be behind this huge recovery surge?

Luxury companies always had a good ‘problem' in the Chinese phenomenon of ‘Daigou’. Daigou or 'Surrogate Shopping' is a term used to describe the cross-border exporting in which an individual or a syndicated group of exporters outside China purchases commodities for customers in China. Often these are luxury goods from big-name designer houses. The main reason Diagou exists is because of the price differential in the Chinese market and buying abroad is often far cheaper even after the middle men take their cut. There is a huge amount of money to be made because of the volumes and value of the goods.

Many luxury companies tried to limit the amounts sold to Diagou so as to preserve their exclusivity and not flood the market. Rarity and scarcity naturally make things more desirable. But, it appears that some of the biggest fashion houses have opened the floodgates to these buyers and organisations, no longer limiting the amounts they can purchase. Having buyers queuing up and wanting to buy as much as you can give them looks like a temptation few brands could resist as they saw their sales fall off a cliff due to COVID 19.

At the end of 2018 it was announced that Kering was ending its joint venture with Yoox Net-a-Porter and taking charge of the e-commerce for its brands including Alexander McQueen, Saint Laurent, Balenciaga and Bottega Veneta. The partnership was slated for renewal in 2020, by which time Kering’s digital operation, which looked after Gucci separately, would have, hopefully, matured to an advanced level.

Diagou reseller Dior

While many of the world’s busiest luxury streets have been quiet since the beginning of 2020, Kering has been using its stores to process online orders rather than its warehouse in Bologna, as it had done previously.

Right - Diagou sending Dior gifts to China?

These ‘distance sales’ are up 25 to 30 per cent throughout the group and, according to an unnamed source, they are now letting the Korean and Chinese Diagou traders buy everything they want.

“The fact that the traders are now allowed to get what they want definitely helps those brands. Even at Dior, they can buy without restrictions now.” they say.

“Some companies do it everywhere. Particularly Louis Vuitton. And Dior. For the Kering Group, before the confinement, they had vague procedures that were changing depending on what items were selling. For example, for whatever reasons, some stores were selling huge amounts of the same item (usually cheaper leather goods with a logo, like pouches). When that happened, some accounts were flagged by the directors. There is a system at Kering called ‘Luce’ where you can see who bought a particular item. Every time, a trader would come, the sales assistant had to check their purchase history.

"At one point, they also checked that the credit card they use matched their profile name. (Companies would send different people who would all use the same company card. That was flagged during audits). After the confinement, every company has relaxed the procedures. I know some traders and they told me that for instance, at Gucci or Moncler, there are no limits on items purchased.

“Even Dior doesn’t do limits of items anymore. Although I hear that Louis Vuitton and Goyard still check accounts. At Saint Laurent, there is a limit of 3 of the same item per transaction. (But they can come every day and buy 3 items - they couldn’t do that before). I understand it is happening everywhere. Also, brands like Dior have resumed doing export sales. But Saint Laurent still refuse export sales unless the client has a good reason (if there is no store in their country that carries what they want to buy). It used to be a huge market for the brands until about 2 years ago when they decided to stop it all ‘to protect the markets in Asia and the Middle East’ mostly.”

Export sales are by a foreign buyer asking for it to be shipped to their territory from a store overseas. The Korean and Chinese traders often buy closer to home in other Asian markets. The Koreans are now the biggest traders selling into China.

“When they used to call stores and ask for an export sale, they would be able to have the VAT off and the European price.” says the source.

Many Daigou are or work with sales staff, using their staff discount as an extra price differential. But, it is not really possible anymore at some brands, like YSL, because they've put a limit on staff purchases. However, the limits are not imposed throughout the Kering group and Gucci doesn’t have limits. I regularly see or hear of people buying the same products. The directors have started to flag it.” says the source.

“One would think the procedures would be the same throughout the group, but it varies drastically and depends on the CEO/ Director’s decision. There are so many odd decisions though. For instance, I heard that Gucci had cancelled the VIP discounts ... which doesn’t make a lot of sense.

Diagou reseller YSL China Chinese consumer Covid luxury brandsThere are limits in the stores but not online for Kering.... which is beyond stupid. Again, something that doesn’t make sense.

“At Kering, there is a separate online system called 'Sellsy' which is like ordering online, but through the store stock. The directors can check the accounts and stop some people from buying (if they suspect that it is for resale), but the traders can call the stores (if they cannot find items in the website) and use a different name. The credit card used cannot be checked by the stores.” says the source.

Left - Saint Laurent AW20

“Although they are starting to check the accounts again. I heard that one Korean trader got flagged and is not allowed to buy anymore. But I am sure he still does.... using various names. Some clients have more than a dozen profiles.... with same email but variations of their name. Quite surreal.” the source says.

Speaking to a Diagou reseller in China, via WeChat, they say they have direct cooperation with many of the brands, but nothing is ever ‘official’. Louis Vuitton is the best seller, followed by Dior, then Gucci. They say that COVID 19 has forced the luxury goods companies into this loose cooperation. 

As for the end consumer, “Most of the clients don’t know anything about luxury. They just want to show off”. says the owner of the Diagou store on WeChat. “They don’t even have passports.”

Asked which products were most in demand at the moment and from which brands. “Every season is different. Which one is best depends how we promote.” they say.

Diagou buy and then export the goods themselves with their commission priced in. It will be interesting how the UK Tax Free shopping changes - Read more here - alters things for Daigou buying in the UK. But, then, the vast majority of reselling sales are made in more localised markets to China, hence the huge uplift in Asia.

What it does signify is the continued huge demand for named luxury goods. Which is a good sign for the industry overall.

Daigou has always been a game of cat and mouse for the brands. In one respect, this great demand is flattering for any brand, but they also want to be extremely protective of their image and how their goods are sold. COVID 19 was a massive jolt for any business and it’s understandable why many brands panicked and became more relaxed about knowingly selling to Daigou for resale into China. It could explain some of the huge bounce back in Q3 sales.

COVID created a vacuum and distorted the balance between buyer and seller. The luxury brands have turned the taps on for the Daigou market. Just don’t expect them to be on for too long.

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Published in Comment
Tuesday, 22 November 2016 15:01

ChicGeek Comment The Future of Luxury Watches

The Future of Luxury WatchesSomething occurred to me the other day with regards to the watch business. Much like the oil industry which continues to pump out millions of barrels of oil, despite the price falling, in order to fend off or weaken the burgeoning fracking industry, (it’s a lost cause, btw, but what other options are there?) the watch industry is doing much the same thing: pumping out large volumes of product at all different price levels trying to keep themselves desirable and relevant.

Left - Are luxury watches sinking for good?

The smartwatch was a catalyst, and while it hasn’t really dented the traditional watch market, it was already under threat from people using their phones to tell the time and the slightly old-fashioned, pompous and alienating approach many Swiss brands/makers have.

Global Blue’s latest data for the third quarter of 2016 show global spending on watches is down -32%. The UK aside, which is experiencing a blip due to the weakness of the pound, Global Blue’s latest year-to-date data shows that the W&J (Watches & Jewellery) category has been hardest hit by the global luxury spending slowdown. 

The reasons they give are: Chinese are buying fewer watches due to the conspicuous consumption crackdown, higher import duties are a major deterrent, as is the dual effect of less attractive product and lack of price differentials. Plus the landscape is dramatically different now that global shoppers are deterred from visiting Europe due to the persistent perception of reduced safety and threat of terrorism.

Like all industries that experience rapid growth it will inevitably lose momentum and stall. They are trying to offer something special, but in volume, which is an oxymoron. They are also not very transparent at helping consumers know what they are buying and paying big bucks for.

They’ve opened huge flagships to showcase their brands in insulation, so as not to be contaminated by any others, but it’s not sustainable. Recently, Mike France, co-founder of internet watch retailer Christopher Ward, said, when talking about mono-brand watch stores, the “Regent Street model cannot be economically viable”. He said: “Ultimately they will die. Some of them will remain, but most of them will die. At the moment stores are flags for the brands; most of them lose a fortune.”

The volumes the industry are churning out are unsustainable too and has taken the 'luxury' halo off the industry. They are in a damned if they do and damned if they don’t situation. 

Lots of consumers are turned off by the prices and are turning towards the ‘pre owned watches’ or 'second hand watches' market for something different or if they still want a status symbol-type brand at a price that they can afford and justify.

I’ve also heard branded/licensed watches in the mid-market are struggling and many brands and fashion companies which don’t specialise in this area are leaving the category all together.

Luxury watches are at a crossroads. Will we look back in a few years and find it funny that people used to wear lumps of mechanical metal on their wrists? Only time will tell.

 

Published in The Fashion Archives

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