Luxury Goods Are Very Polarised. What Are The Unique Skills Of The "Super Winners" In The Future?

Most luxury giants still show strong growth momentum.

According to McKinsey's recent global fashion index, the global fashion industry has reached a new level in 2018. However, the revival of the fashion industry also presents a serious polarization. The economic benefits of most fashion giants have accumulated to the top 20 "super winners", especially luxury goods, that dominate the value creation of the fashion industry. The luxury giant's current economic profit totals about $25 billion, equivalent to 97% of the value created by the entire fashion industry (70% in 2010).

Despite the impact of the 2018 macroeconomic environment and Sino US trade conflicts, most luxury giants still showed strong growth momentum except for the downturn of individual groups. This is evident from recent earnings reports.


LVMH: revenue refresh record


Despite the slowdown in the growth of luxury goods in 2018 compared with 13% in 2017, LVMH, a luxury industry magnate, has produced a brilliant report card under the current international economic and trade background.


LVMH, the world's largest luxury group, has released its fourth quarter and full year performance report for fiscal 2018. The report shows that in fiscal year 2018, LVMH revenues and profits both gained two digit growth. Revenue grew 10% to 46 billion 800 million euros, and operating profit increased 21% to 10 billion euros compared with the same period last year. Basically in line with analysts' expectations, it also refreshed the group's historical record.


At the same time, with the promotion of the core brand LV (sales volume of 10 billion euros) and Dior, the revenue of the fashion leather Department of the group has increased by two digits in 9 consecutive quarters, and its operating profit has increased by 21% over the whole year.


Surprisingly, France's "yellow vest" campaign has not had a significant impact on its sales in the European market, LV chief financial officer Guiony said, despite the closure of LV stores during the parade, many customers changed their shopping hours and went to shop consumption.


The Asian region is still a major market for LV. Guiony said that although sales in the Chinese market shifted slightly to other Asian markets, no obvious signs of slowing down were observed. On the contrary, the growth of Chinese brands in the fourth quarter of the majority of the brands of LVMH group reached two digits.


Kai Yun group (Kering): performance exceeds expectations


According to the fourth quarter and annual performance report released by Kai Yun group, one of the world's three largest luxury goods giants, with the promotion of the core brand GUCCI, the annual sales of Kai Yun group rose 29.4% to 13 billion 665 million euros in the same period last year, operating profit rose 46.6% to 3 billion 944 million euros, while the luxury sector's revenue grew by more than 20% in the eight quarter. The growth rate has obviously exceeded the growth rate of the sales of the fashion leather Department of its competitor LVMH last year, 15% over last year, LVMH.


Benefiting from the divestiture of sportswear brand Puma, the profit margin of Kai Yun group jumped 5 percentage points to 28.9% in 2018 (27% before analysts expected). Jean-Marc Duplaix, chief financial officer, told reporters that the demand for Chinese customers remained "very dynamic" in the fourth quarter. Their overseas purchases decreased and domestic purchases increased. The trend in China is still very good.


Gucci (GUCCI): Sales first break 8 billion euro


It is noteworthy that GUCCI, which has been leading for 12 consecutive quarters, rose 36.9% to 8 billion 285 million euros in 2018, the first time it entered 8 billion euro clubs, and the brand operating profit surged 54.2% to 3 billion 275 million euros compared with the previous year. Its sales and operating profits accounted for 63% and 78% of the sales and operating profits of the luxury sector of the parent company, respectively. GUCCI's fourth quarter sales reached an endogenous growth of 28%, reaching 2 billion 300 million euros ($2 billion 600 million). Further consolidate GUCCI's leading position in the global luxury industry.


Richemont: Double growth in China's market


The three quarter results of Richemont announced that the Swiss watch market is slowing down.


In 2018 10 - December, the revenue of the group rose 25.2% to 3 billion 915 million Swiss francs, which basically met the market expectations of 3 billion 920 million euros, a 3 billion 127 million Swiss Franc in the same period last year, and a fixed exchange rate increase of 24%. However, the double-digit growth mainly came from the contribution of Yoox Net-a-Porter Group SpA (YNAP) and Watchfinder.co.uk, excluding two businesses. In the three quarter, the Group sales increased by 6% and the fixed exchange rate increased by 5%.


However, the group said that China's mainland market still recorded double-digit growth in the three quarter. The decline in consumption of Chinese consumers' Tourism channels benefited the local market, while the European and Middle East (-13%) market recorded a negative performance and the growth rate of Hongkong's China market slowed sharply.


Herm s: revenue approaching 6 billion euros


According to the 2018 financial performance report released by Herm s, the group's revenue in 2018 rose by 10% to 5 billion 966 million euros on a fixed exchange rate, up 10% in the fourth quarter, and increased in all regions. The gross profit margin of the group in 2018 was close to 34%.


By region, Asia's income rose by 14% compared with Japan, and sales in China were particularly strong. In 2018, Herm s expanded and updated the IFC store in Shanghai, opened new stores in Hongkong, Changsha and Xi'an, and launched the official website in October 2018.


Axel Dumas, chief executive of Hermes group, expressed satisfaction with its performance in 2018. "Under the circumstance of global instability, I am glad that Hermes's income is approaching 6 billion euros, and this performance reflects the attractiveness of our products."


Chanel (Chanel): the fastest growth of value in 2018


According to the annual ranking list of the 500 most valuable brands in the world released by Brand Finance, the brand value of luxury brands such as Chanel, Dior, Cartier and LV has increased significantly from 2018 to 2019, with the strong promotion of Chinese consumers and the Chinese market. Among them, the fastest growth was Chanel, which jumped 95.1% in 2018, ranking 299th from the previous year to 149. The ranking of GUCCI and Herm s did not change, ranking 182nd and 163rd respectively.


Tods (Tods): both group and brand revenue declined.


In January 24th, Italy luxury group Tod's released 2018 earnings report, group sales fell 2.4% to 944 million euros, mainly affected by the wholesale channel, core shoe business and leather goods department revenue decline, including shoe sales department sales fell 1.9% to 743 million 600 thousand euros, leather accessories Department revenue fell 5.3% to 128 million 600 thousand euros.


During the period, Tod's brand sales fell 3.3% to 498 million 600 thousand euros, Roger Vivier sales fell 3.2% to 173 million 500 thousand euros, Hogan's revenue grew 1.1% to 206 million 100 thousand euros, and Fay sales fell 3.5% to 61 million 300 thousand euros. Diego Della Valle, chairman and chief executive officer of Tod's, said that despite the increasing international economic and environmental uncertainties, the group's sales in the Greater China region accelerated in the fourth quarter. The real income of the group increased by 3.1% to 210 million euros over the same period last year.


Tape Stree (Tapestry): quarterly results are lower than expected.


A few days ago, the parent company of Coach, Kate Spade and Stuart Weitzman and Tapestry Inc., the us light luxury group, announced the second quarter earnings of 2018/2019 in the fiscal year. Sales and profits increased by two times. However, they were not as effective as market expectations due to macroeconomic and geopolitical influence.


The second quarter's performance has not satisfied analysts, or failed to dispel their concerns. As of February 7th closing, Tapestry shares fell sharply from 14.83% to 33.48 U.S. dollars / share on the previous day.


Greater China will become the world's largest luxury market.


It can be seen from the above financial report that China has become an important driving force for the growth of global luxury consumption in 2018. The McKinsey report shows that Chinese luxury consumers spend more than 500 billion yuan a year, accounting for nearly 1/3 of the global luxury goods market.


Despite the impact of the 2018 macroeconomic environment and Sino US trade conflicts, the latest survey data show that 46% of mainland Chinese consumers and 32% of Chinese consumers in Hongkong still say they will increase spending on luxury purchases in the coming year. The young millennial generation has shown amazing buying potential and is becoming the main source of luxury purchases.


The McKinsey Fashionscope report also points out that greater China will surpass the United States for the first time in several centuries to become the world's largest fashion market. The big shuffle of the fashion industry is mainly due to the decline of the US economy and the growth of the Chinese market. According to Bain's earlier report, it is estimated that by 2025, Chinese consumers will contribute nearly half of the global luxury sector sales. Chinese consumers have become more rational in recent years. Consumers like to go shopping crazily in the past few years, but in recent years they have begun to return to local consumption.


Swiss bank analysts said that the change of Chinese consumer habits, and because of the increasingly important position of the Chinese market in the luxury market, many luxury brands have adjusted the pricing model, reducing the price gap between China and overseas markets, which has greatly promoted the return of consumers.


Future challenges and potentials of luxury industry


Recently, the Rhodes public relations and precision Market Research Center released the "2019 China luxury report" to explore the trend of industry development from consumer behavior and preferences. Rhodes, senior vice president of Asia and general manager of luxury business in China, said: "in 2018, we clearly noticed the spread of digital channels to the whole industry, the change of market, the amazing potential of purchasing power of younger generation, and the emergence of different market leading brands. In this era of great change, brand is hard to rely on a single strategy and needs to seize multiple opportunities in time to grasp the changing Chinese luxury consumers.


In view of the current potential political and economic impacts, luxury industry mainly has the following countermeasures:


First, change the mode of production and look for new economic growth points.


The format report pointed out that in the future, in order to respond to the trend of sustainable development and consumer demand, production on demand, reducing inventory backlog will become a new normal.


The report points out that the younger generation's enthusiasm for social responsibility and environmental causes has never been higher. According to DDT's consumer insight report released in 2017, the millennials pay attention to eco friendly when buying, and data show that 66% of young consumers are more inclined to buy environmentally friendly products. In order to embrace young people, the luxury industry must make fundamental reforms.


In addition, the practice of environmental protection and sustainable development has also become a new economic growth point in the luxury industry. McKinsey has pointed out in the 2018 fashion report that "sustainable development is an increasingly important topic, and the circular economy will gradually be embedded in the entire value chain."


The two is to choose cross boundary marketing and expand the possibility of brand.


With the increasingly fierce competition in the industry and the ever-changing tastes of consumers, luxury brands have long since abandoned the strategy of single handedly.


The luxury industry joint tide card is the most recent test: whether LV joint Supreme or Dior pull KAWS, luxury brand Street brings huge cash flow to it, and also labels the "pain spot" of young people who can stamp the brand. This is the best proof from the sales of LV joint supreme series.


Three is to seize the Chinese market while actively developing new areas.


The format report points out that with the growth of the middle class consumer groups and the enhancement of manufacturing industry, India will become the focus of fashion industry in the future. Europe consulting has predicted that by 2019, the size of the luxury goods market in India will grow more than doubled. Although the figure is disparate with the Chinese market in terms of volume, the growth rate of India's luxury market is noteworthy.


Latin America and other regions are also potential luxury goods markets. "Luxury market demand and investment forecast analysis report" statistics show that demand for luxury goods in emerging markets such as China, and the Middle East, Latin America and Eastern Europe will boost the growth of the luxury market. Columbia will become a luxury city in Latin America.