Can Luxury Brands Be Immune To The Epidemic Situation?

The sudden outbreak has disrupted the original pace of all walks of life and made the golden day of the Spring Festival exit earlier than usual. For many luxury brands, the outbreak time is even more "ignorant of the times". The Lunar New Year holiday is supposed to be an important trading node for luxury goods businesses. However, due to the unexpected arrival of the "black swan", shops inside and outside the country are all deserted, with few visitors.

According to Bain consultancy data, global consumers spent $306 billion on personal luxury goods in 2019, and Chinese shoppers account for more than 1/3 of global luxury goods sales. Among them, Chinese consumers also contributed 2/3 of the growth in the global luxury industry. But when things suddenly change, luxury market is like an aircraft being suddenly turned off the engine. How long will the crisis last? Can all major brands achieve a perfect "soft landing"?

　 The luxury market is cloudy.

In February 17th, academician Zhong Nanshan, an expert in Department of respiration in China, said that the peak of the new crown pneumonia appeared in the middle of 2 and was not stable until the end of April. It can be seen that the impact of the new crown pneumonia epidemic on luxury brands is still uncertain, and may even last until the second quarter. As a result, many luxury brands have lowered their performance expectations for the 2020 fiscal year, and have taken temporary measures to close stores in China and shorten business hours.

Fran ois-Henri Pinault, CEO of Kai Yun group, said in a February 12th earnings call conference: "with the outbreak of coronavirus, our market environment has changed dramatically." Despite its strong quarterly results, its group of Gucci, Saint Laurent and Alexander McQueen has seen "a serious drop in sales in China", and because of this epidemic, sales in the world have dropped sharply in recent days. Pinault said that the company has closed half of its stores in China, while the remaining stores still open business will shorten business hours and shelve new store activities and advertising. He said: "because the epidemic is still changing, it is impossible to fully assess the impact on business and the speed of recovery in the future."

About 2/5 of the Burberry group's sales come from Chinese consumers. The company issued an official statement that it had closed about 1/3 of Burberry stores in China, but the number of stores still open was down by 80% compared with the same period last year. Therefore, Burberry also withdrew its annual performance forecast for 2020.

In addition, several well-known fashion groups also lowered their monthly earnings forecasts. Last week, Capri, the parent company of Michael Kors, Versace and Jimmy Choo brands, said they decided to close 150 of its 225 Chinese stores and cut its sales forecast for the quarter by 100 million US dollars. Tapestry, the parent company of Coach, Kate Spade and Stuart Weitzman brand, also said sales would be down by $250 million after shutting down most of its stores in China.

"Luxury consumption is suddenly cold in China, and most brands are either zero or down by at least 80%," Luca Solca, a global luxury market analyst at Bernstein investment consultancy, told New York Times. Compared to the SARS epidemic in 2003, this coronavirus could have a greater impact on the luxury industry, because more brands are now more dependent on sales growth in China and Asian markets than at that time.

In addition, the impact of the epidemic on the fashion industry can not be ignored. As a world factory, China has not only a complete industrial chain, but also a world-class fashion manufacturing level. Many international luxury brands set up their own production lines in China. According to Wells Fargo statistics, 1/4 of the products of the American luxury fashion brand Ralph Lauren are completed in China; the top down jacket group Canada Goose's "made in China" account for about 10%; Coach, Fossil and other brands have a large number of components manufactured in China. Therefore, if China's factories are affected by the epidemic and can not return to work as soon as possible, the global fashion supply chain will inevitably be affected.

Despite the widespread concern about the adverse effects of the epidemic on the luxury sector, at present, major luxury goods such as LVMH and Kai Yun group remain relatively strong, and the market is still optimistic. Lin Giralt, a professor of business at Rice University, said in an interview with the twenty-first Century economic news reporter that a well run luxury brand with long fame and high profit holdings should be able to withstand short-term fluctuations and quickly get a boost. What should be worried is the luxury companies and the middle end market brands that are vulnerable to market shocks or have already seen weak sales. Analyst Solca also said: "now, the potential attractiveness and strength of the luxury industry is still very strong. Most investors believe that the impact is temporary and the market will soon return to normal."

　　 The golden thread behind the black clouds

In order to control the epidemic situation, China has implemented a strong residential segregation and travel protection measures to curb the possibility of cross infection in public places. For security reasons, most people choose to stay at home, and online shopping naturally becomes a channel to replace people's offline consumption. In the case of many luxury brand line activities and the physical retail store business collectively frustrated, decided to give up the first quarter sales performance, some strong brands actively choose curve saving the country, with online sales to make up for offline sales decline.

Among them, the "model student" is Louis Vuitton. With the launch of Valentine's Day shop in WeChat Mini program, Louis Vuitton has achieved two times the sales volume of online channel during the Valentine's day this year compared with the same period last year. According to LADYMAX, the brand can still guarantee its sales performance during severe epidemics, mainly due to the rapid reaction of brands and the linkage of online and offline channels. In addition to promoting online flash activities, the brand side also lets the original sales staff share the small program two-dimensional code to the customers who used to consume under the line, and get through the transformation of the online and offline customers. In addition, it also provides professional customer service, free logistics, complete after-sales service and special product disinfection service, ensuring that consumers can enjoy luxury level consumption experience everywhere in digitalized environment.

According to the "2019 China luxury report" released by the guest Research Institute, the sales volume of Chinese luxury goods online reached a record $7 billion 500 million in 2019. In 2020, the Chinese luxury goods business market will continue to erupt, and the growth rate is expected to exceed 50%. Although luxury consumption pays much attention to scene experience, it is limited to epidemic situation. Nowadays, brands have to shift their offline interaction and products to online. This is both a crisis challenge and an opportunity for brands to embrace new retail.

It is difficult for both sides to overcome difficulties.

Although the market is not as good as expected, the sales performance of luxury goods in January and February is generally bleak. However, many brands still choose to give generously, donate money and donations to show their responsibilities in social responsibility. In January 27th, the LVMH Group donated 16 million yuan to the Chinese Red Cross foundation to help alleviate the shortage of medical supplies badly needed in Wuhan. Meanwhile, China Red Cross Foundation will help and acquire important supplies in France and throughout Europe. In January 30th, the Group paid 10 million yuan to the Red Cross Society of Wuhan, and expressed its willingness to work together with the Chinese people and all the people affected by the virus to fight against and overcome the epidemic. In February 4th, Herm s group set up the Chinese Song Qingling Foundation's Hermes White Angel Guardian plan and donated 5 million yuan to the Chinese Song Qingling foundation.

Alessandro Michele, the creative director of GUCCI, painted a simple stroke called "sky star, my heart", and was accompanied by a copywriter "willing to love all the places of hope / stars / love to be with you / we wait for the sunny moment", and won a lot of praise. BVLGARI donated the research department of Lazzaro Spallanzani hospital in Rome to support the research and development of the new crown vaccine. According to incomplete statistics from the guest Research Institute, as of February 19th, the international luxury goods and fashion group contributed a total of 89 million 500 thousand yuan.

As February 7th Louis Vuitton released in the official social media platform posters: "press the pause button travel will eventually start again." We also look forward to witnessing the long winter of this winter and the past of depression.