The Challenges Facing The Luxury Industry Come Mainly From Three Aspects.

Although China Luxury goods The potential of the market is limitless, but the growth of China's new middle class consumers can not be restored to their previous prosperity and how to compete for China. market Share for luxury brand It may be a fierce battle.

The first thing to sound the alarm is the "luxury" iPhone.

According to the world clothing and shoe net, yesterday, apple cut its revenue guidelines for the first time in 15 years, resulting in a steep fall of nearly 10% to 142 dollars in the share price. Apple blamed the problem on the decline of iPhone sales in the Chinese market. The average monthly salary of Chinese white-collar workers in the third quarter of 2018 is 7850 yuan, which means that most users need to spend more than a month to buy a iPhone. Obviously Apple wants to make iPhone a luxury item. However, high pricing has become a disaster, and it has gradually revealed that the purchasing power of Chinese young consumers is overestimated.

Affected by market sentiment, LVMH yesterday's share price also fell nearly 4%, Burberry shares fell 5.9%, Gucci's parent company's share price fell 5.5%, Prada shares fell 3.64%, and Swiss watch group Swatch shares fell 3.5%.

According to the world clothing and shoe net, apart from apple, the growth of more and more luxury brands is heavily dependent on the Chinese market. However, the current complex market situation or the growth of these brands is at risk. Analysts Benjamin Cavender pointed out that this year may become a tough year for Western brands. Chinese consumers may not be willing to spend money on the latest smart phones or luxury handbags when they tighten their spending.

In other words, China's consumption has begun to fail to support Apple's ambition. The house reflects the situation of the rich in China. The car reflects the situation of the middle class in China. The Apple phone reflects the situation of the young people in China, and these three groups are closely related to the consumption of luxury goods.

Industry analysts say sudden changes in the Chinese market will hurt the luxury brands. The fluctuation of share prices reflects the concerns of investors. Chinese consumers are buying fewer smartphones. The next consumer category may be luxury handbags and watches.

In another important market for luxury goods, the United States, according to an anonymous analyst quoted by the women's wear daily, said that more fashion retailers will apply for bankruptcy protection this year. The analyst added that although online sales improved, it helped offset the decline in the sales of physical stores, but also reduced the impulse buying of consumers. It has been reported that consumers are more purposeful in online shopping, and welfare benefits such as promotional activities or freightage also cause further pressure on earnings.

According to a report released by credit rating agency Fitch in December last year, the debt risk of nine retailers is the most noteworthy. Among them, the luxury retailer Neiman Marcus group has the largest amount of debt, with $2 billion 800 million in regular institutional loans and $1 billion 800 million in bonds.

In addition, according to earlier reports, despite a record high holiday sales, the US consumer confidence index dropped to 128.1 again in December, due to the effect of the US tax cuts, uncertainties in monetary and fiscal policies and the negative effects of trade friction.

Coincidentally, the outlook for the British fashion industry is also not optimistic. The British economy has been on the decline since the British took off from Europe in 2016, leading to the fact that the British luxury retail industry is in danger, and consumer spending power and confidence are also declining. Last December, British consumer confidence was at its lowest level in five years. Data show that in 2019, the British retail industry will cut 164 thousand jobs, compared with 2018, the wastage rate increased by 20%, and more than 2.2 stores are expected to close.

Since the 2008 economic crisis, with the revival of the global economy, especially the accelerated development of China's economy, the luxury fashion industry has gone through the cold winter and has achieved strong growth in more than 2 years. According to the latest report released by Bain and Italy luxury industry association, sales of global luxury goods market increased by 5% in 2018, 1 trillion and 200 billion euros, and personal luxury goods sales increased 6% to 260 billion euros.

From the performance of the three giants of LVMH and Gucci, Kai Yun group and Hermes group, the three figures recorded double-digit growth in the third quarter, mainly due to the strong purchasing power of Chinese consumers. However, there are people in the industry who believe that the future of luxury fashion brands will still face tough challenges if they want to achieve greater growth. With the growing maturity of fashion awareness among young Chinese consumers, the importance of individualization and the decline in purchasing power will have an impact on luxury brands.

According to McKinsey's latest report, the growth rate of global fashion industry will slow down to 3.5% to 4.5% in 2019 after a brief recovery, slightly lower than in 2018. The report also stressed that Britain's off Europe and the global economic slowdown will begin to permeate the fashion industry. In the global economic situation is not optimistic about the environment, the shock has begun to emerge, the luxury industry can not be alone.

At present, the challenges faced by the luxury goods industry mainly come from three aspects:

The global political and economic situation is a worry.

Since the second half of last year, analysts have repeatedly sent out signals suggesting that the fashion industry or downside risks. In fact, some analysts believe that the characteristics of the luxury market are fast changing and closely related to the global economic situation. Any economic problems and geopolitical instability are the swords of Damour.

Apart from the negative effects of economic problems such as money and Europe, social and political factors also increase instability. The "yellow horse" protests caused by fuel tax in France directly led to the loss of luxury brands in Paris's Champs Elysees street. The unstable political environment also led to a sharp decline in the number of Chinese tourists in Paris, and the share prices of major luxury groups such as LVMH had been on the decline.

According to earlier reports, the first weekend of the protests, that is, the retail sales in November 17th, fell by 35% compared with the same period last year, down by 18% in November 24th, while the sales of senior department stores in Paris fell by 25% to 30%. In a month, the retail trade in France lost 400 million euros. In addition, more than 30 luxury stores such as Dior have been hit and robbed and lost more than a million euros.

According to the DDT report, nearly half of the luxury goods are spent during tourism, of which 16% are at the airport. Exane analysts point out that more than 70% of the luxury goods sales in Italy and France are from Chinese buyers, while in the UK and Switzerland, the proportion is 50%, which has become a major consumer behavior for Chinese tourists.

Therefore, any impediment to travel, such as terrorist attacks and other social events, will be a serious blow to luxury goods. For example, after the refugee tide and related terrorist attacks in 2016, Paris's luxury brand Dior declined 2.9% to 464 million euros in the fourth quarter of fiscal 2016, and its operating profit dropped 30.2% to 74 million euros after the decline in the number of tourists in Europe and Europe.

To avoid such uncontrollable situations, luxury brands began to drain their purchases into the mainland market. Under the background of China's lowering of import tariffs and the soaring exchange rate of the euro, the luxury brands began to reduce the price difference between China and overseas markets in order to retain customers. Data show that in 2015, China's luxury goods prices were generally 60% or 70% higher than that of Europe, and the average premium has now narrowed to 25% or 30%.

Excessive dependence on Chinese consumers may be a poison to quench thirst.

It is noteworthy that the Chinese market, which is regarded as the main engine of growth by luxury brands, is also beginning to be full of uncertainty. According to a McKinsey report, Chinese luxury consumers spend more than 500 billion yuan per year, accounting for nearly 1/3 of the global luxury goods market. It is estimated that by 2025, Chinese consumers will contribute nearly half of the global luxury goods sales. Among them, the Chinese generation after 90 has become an incremental consumer of luxury goods. COACH has also revealed in its earnings report that China has become the second largest market after COACH in North America, and is expected to become the largest source of revenue in the world.

An analysis by the Wall Street journal also pointed out that in 2018, the luxury group overly relied on the Chinese market or became a new risk. But investors had little choice but to get used to this situation. For Louis Vuitton, Chanel, Prada and other brands, Chinese consumers contributed about 1/3 of sales and the biggest driving force for growth.

From March to September, Burberry recorded a median growth in the Asia Pacific region, including China. Hermes also admitted that it had benefited from the strong performance of the Chinese market in many quarters. Therefore, it will set up its own official network service provider and more offline stores in the mainland of China, which is also the main source of revenue for the first half of the Cartire parent company.

Investors also worry about luxury brands' dependence on the Chinese market. In June 2018, UBS issued a warning that although China is now recognized as the most potential luxury goods consumer market, it is expected that the pace of China's luxury consumption will slow sharply in the second half of this year, increasing from 13% in the first half of last year to 7% to 8%. When the news came out, the share price of LVMH, Gucci's parent company, cloud group and Burberry suffered a setback.

In October last year, China's customs cracking down on purchasing news made the market value of Europe's three luxury goods companies LVMH, Hermes and Kai Yun group erased 21 billion dollars in a day. Obviously, any Chinese wind and grass influence the market's confidence in the luxury goods industry.

The Wall Street journal further pointed out that compared with consumers in Europe and America, Chinese consumers spend more of their income on luxury goods, which increases the uncertainty of luxury goods growth in China. Because once the economy slows down and the disposable income of consumers decreases, luxury brands will become the "burden reduction" first choice. Now, such factors as stock market decline, trade friction and real estate regulation make the development prospects of luxury brands unclear in China. Hermes CEO Axel Dumas has said earlier that the group pays close attention to China's stock market and the real estate market, because any change in high-end customer assets may affect group performance.

Compared with Chanel, Louis Vuitton and Gucci luxury goods group, Hermes has a higher degree of dependence on handbags and accounts for more than 50% of revenue. The shrinkage of high-end customers' purse will have an insignificant impact on the brand. In the second quarter of last year, although Hermes sales continued to maintain a high single digit growth, the core handbags and harness sector slowed sharply, with a growth rate of only 3.6%, a sharp decrease from 10.5% in the same period last year.

Fashion industry backyard fire

The ultra fast pace of luxury industry has forced the strategy of changing luxury brands. The luxury brands, which were tailored, designed, characterized by historical precipitation, and the main premium capability, were constantly approaching the street brand in style and business operation.

Luxury brands frequently cooperate with Chao brand to launch capsule series. Since July 2017, Louis Vuitton and Supreme jointly launched capsule series, and Rimowa x Supreme, Jimmy Choo x Off-White and other cooperation have been emerging. Last March, Louis Vuitton even appointed Virgil Abloh, founder of Off-White, as the creative director of men's wear. Burberry absorbs the monthly Drop mode of street brands.

There is no doubt that the market of luxury brands has changed a lot, breaking the situation that has only been sold to elite consumers. More and more luxury magnates are scrolling the market and learning street brands. They are beginning to tend to fashion and cost-effective clothing and mainly targeted at young consumers.

The proportion of single product also began to tilt towards street style logo products such as sweater, sportswear, sports shoes, loose coats and other casual wear. The symbolic use of Slogan and big Logo expressions in the street tide brand were also frequently used by luxury brands for reference.

But in the previous analysis, the popularity of street culture and Hype culture is becoming more and more homogenized. A more worrying trend is that luxury brands have recently changed their Logo designs.

Since February 2017, at least 7 luxury brands such as Balenciaga, Rimowa, Berluti, Calvin Klein, Burberry, Celine and Balmain have changed brand Logo. Although the replacement is behind the efforts made by the brand to become younger, many brands have changed the Logo to uppercase and sans serif fonts. Analysts worry that the new Logo will start to show obvious trend and convergence, which will make the brand disadvantaged due to its loss of recognition.

Some analysts believe that fast and mass production can generate huge profits in a short time. As a commercial machine, efforts to cater to the tastes of customers are understandable. But the trend of brands to follow the trend and blindly turn to the mainstream trend will lead to the increasingly unfashionable fashion nowadays, and the freshness is fleeting. Consumers will soon be fatigued with aesthetics.

Compared with other brands, luxury brands need high exposure to get consumers' recognition and popularity. As a result, luxury brands begin to hire KOL and stars frequently. These KOL can make use of their influence to create "burst money", reduce the risk of their own creativity and stimulate consumption. Luxury brands such as LV, Dior and Jaeger Le Coulter watch are competing to hire their influential products, such as Wu Yifan, Angelababy and Papi sauce, to promote their products. Michael Kors has stolen the queen Yang Mi.

Some analysts say that although the recent two years of sudden social media marketing has provided convenience for the growth of the luxury industry, the explosion of brand names has emerged one after another, but the bonus period of excessive marketing and exposure on social media is also going to be over, and consumers are beginning to feel tired. Some consumers believe that today's burst prediction has fallen into a conservative cycle. It seems that the constantly updated products are actually repeating the past.

Bloomberg analysts say investors are beginning to worry that Chinese consumers are no longer keen on buying Balenciaga sports shoes and Cartire bracelets. Brands need to find new marketing models to increase exposure. Therefore, luxury brands should be vigilant. If the eyes only focus on the present, impatiently seek rewards, and push creativity to the corner, the ending will be different from the collective suicide of the brand.

The luxury industry has always been unpredictable, and economic, political and social factors will have a profound impact on it. After all, China sneezes, the whole world will catch a cold, and the luxury market is no exception.

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