Cross Border Transfer, Contrarian Contraction, Can The Luxury Industry Encounter A Crisis If It Is Hit By An Epidemic?

Under the impact of the epidemic, the major luxury goods group closed stores while cross boundary production, Chanel began to produce masks, Dior, Givenchy perfume production line began to produce hand sanitizer, Burberry began producing protective clothing...... Many netizens joked, "this is my closest time to buy Chanel, Dior and Burberry!"

Recently, a number of luxury brands issued a warning that it is expected that sales in January to March will decline significantly. As the epidemic continues, the outlook for the luxury goods industry is worrying this year. Statistics from Johns Hopkins University show that as of 8 hours in Beijing at 20 o'clock, the total number of confirmed cases in the world has reached 1446557 cases, and 5 countries have exceeded 100 thousand of the total number of confirmed cases, namely, the United States, Spain, Italy, Germany and France.

However, this is a crisis and a turning point. For the luxury brand that has always been "highly cold", with the gradual transfer of consumer habits to online transfer, digital transformation will become a top priority.

Sales declined significantly in the first quarter.

In January 19th this year, according to the real-time global rich list released by Forbes, the French LVMH Group Chairman and CEO Bernard Arnault replaced Amazon founder Bezos as the world's richest. Arnault's LVMH group has LV, MOET & CHANDON Hennessy, Dior, Givenchy, Bvlgari, Tiffany, Fendi and other brands. At that time, the luxury industry led by LVMH group was looking forward to a new high this year.

Although the outbreak of the new crown virus is spreading in China, many people believe that the impact of the outbreak is controllable. Arnault said at the earnings conference held in early February, "the negative impact of this virus will not be as serious as that of 2003's SARS. In addition, the Chinese government's response is quite fast, and its efficiency is very high, which has a great positive impact on the overall situation. We believe that the disease will be controlled in mid 3, but what I have said is just what I know. "

However, people are not as good as God. Although the new crown virus epidemic is under control in China, it spreads in Europe and the United States. In order to control the epidemic situation, many governments have issued a "non essential" business place closure requirements, and luxury goods companies as a non essential industry have to close some stores.

In March 27th, when the LVMH group released the management report of the board of directors, it talked about the impact of the new crown epidemic on group performance. The group said, "in extremely uncertain circumstances, the group will adhere to the strategy of focusing on brand value. In the short term, in response to the epidemic response measures taken by the government, the group's production plants and stores in several countries have been closed, and the group's performance has been affected. Because they do not know when these countries will return to normal, it is not possible to accurately calculate their negative effects. " According to the group's forecast, compared with the first quarter of 2019, sales in the first quarter of this fiscal year will drop by 10% to 20% over the same period.

Coincidentally, the French Open Cloud group, which owns Gucci, Saint Laurent and Bottega Veneta, also cut its total sales in the first quarter. The French Open Cloud group said in March 20th that comparable sales will fall by 15% year-on-year in the first quarter of this fiscal year as of March 31st, and total sales will decline by 13% to 14%. In addition, Kai Yun Group expects the operating profit margin in the first half of fiscal year will also decline, but the Chinese market has been gradually improving.

Meanwhile, the British luxury group Burberry also announced the impact of the new crown virus epidemic on the company's performance in March 19th: since the 6 week of January 24th this year, Burberry's same store sales have fallen 40% to 50% year-on-year. Despite the gradual recovery of the Chinese market, 60% of the stores in EMEIA (Europe, the Middle East, India and Africa) are closed, and the North American market has closed 85 stores. At present, 40% of Burberry's stores are closed. The Group expects its revenues to fall by 30% in the fourth quarter of March 28th as of the current fiscal year.

The once luxury industry has never thought that this year's global retail industry will change. In an interview with the economic news reporters in twenty-first Century, Ye Yu, the partner in charge of PWC's China consumer market, said that consumption was suppressed by the epidemic. The global luxury industry's performance in January and February has dropped significantly, making the industry's prospects in the near future Mengyin.

According to Bain statistics, the overall sales of the global luxury goods market dropped 25% to 30% in the first quarter of this year.

The uncertainty of the whole year is increasing.

Then, in April 6th, Italy Salvatore Ferragamo group released the first quarter financial year earnings report this year, exacerbating investor concerns.

According to the group's earnings report, Salvatore Ferragamo sales fell by 30.6% to 220 million euros, due to a significant reduction in passenger traffic and closet closes, compared with an increase of 4.3% over the same period last year. According to the channel, sales of brand retail channels dropped by 28.6%, while wholesale channel sales fell by 33.7%.

The group's chief executive, Micaela Le Divelec Lemmi, said that in the past three months, all sectors of the global market have been affected, especially in the Asia Pacific market, which is an important growth engine.

Ye Xie told the twenty-first Century economic news reporter that poor sales performance in the first quarter did not mean consumers were unwilling to buy, but because most consumers were in a panic stage during this period. "In general, if there is a major outbreak, such as 2003 SARS and 2015 MERS, sales of non rigid consumer goods will be curbed. Luxury goods belong to non rigid consumer goods. However, with the improvement of epidemic situation, consumption desire will be released slowly. "

Bain said in the latest luxury research report that the new crown virus epidemic poses a serious threat to economic development. Gross domestic product, employment and financial markets have been severely hit. In addition, due to the spread of the global epidemic, restrictions on travel, restrictions on civil aviation, cruise ships to reduce infection and other measures will continue to combat other luxury goods and services.

However, Bain believes that luxury consumption in the Chinese market seems to be recovering. To curb the epidemic, almost every luxury brand in China has to temporarily close stores or reduce working hours, resulting in a two digit year-on-year decline in sales. But since the re opening of luxury stores in China, consumption has picked up faster than expected.

Obviously, the recovery of China's market is good news for the luxury market. Morgan Stanley research data show that in 2019, the world's three largest luxury goods giant LVMH, Kai Yun group, and peak group accounted for 17%, 25% and 25% of China's revenue respectively. Among them, Chinese consumers accounted for 10%, 17%, 11% of the group's revenue in the mainland market.

However, ye stressed to reporters that relying solely on China's strength is difficult to support the development of the industry as a whole. At present, we are all in the global economy. Although China's economy and epidemic situation are slowly improving, China can not be alone. The trend of the global epidemic is still attracting much attention. "As the trend of the global epidemic is still uncertain, will there be any retaliatory consumption and counter elastic consumption in the luxury sector? We need to see the trend of the epidemic."

"If the global epidemic can be over soon, consumption and consumer confidence will gradually increase. The ability to buy high luxury goods is related to whether a person has enough disposable income. If the overall economy is not good, consumers' desire to buy and purchasing power will be curbed. " Added Ye.

Bain also pointed out that many consumers' consumption intention and consumption ability will be affected after the outbreak. Luxury brands need to adjust their prices to suit their local consumption capacity.

For this year's outlook, Bain expects the industry to shrink between 22% and 25%, and the market will evaporate from around 60 billion euros to 70 billion euros. In addition, according to the duration and intensity of the epidemic, GDP expectations, consumer confidence and other macroeconomic indicators, Bain gave three prospects for the global luxury market this year: first, assuming that market demand is picking up in the second half of this year, the overall market will shrink between 15% and 18% this year. The market will decline by 22%~25% until the fourth quarter, and the third quarter will fall from 30% to 35% due to the sluggish sales in the longer term.

Ye believes that through this epidemic, consumers are more dependent on health, safety, quality of life and products, and tend to lead a more quality life. Therefore, in the long run, luxury companies will still have a market if they can meet the demands of ordinary people for quality life.

Crisis or opportunity for transformation

Despite the rapid rise of e-commerce in recent years, for the top luxury brands, opening flagship stores on the electronic business platform is not the first choice to expand market share in order to maintain the brand's tonality. In twenty-first Century, the economist reported that many of the first tier brands such as LV, Gucci, Chanel and Fendi had not opened flagship stores. However, this strategy may change in the future.

Ye Min told reporters, "for the luxury industry, the original online business is less, more is the supplement to offline stores. But now the shopping habits of the major consumer groups in the luxury market have changed, and they are more inclined to purchase online.

Ye suggested that in order to reach more consumers, luxury brands should increase their online operation and accelerate the process of digital transformation in the future.

Bain also said that the digital transformation of the brand will accelerate in the future. Although the flow of physical stores will pick up in the case of health and safety, the habit of online shopping will continue to exist during the outbreak. "This trend will be particularly beneficial to brands that successfully launch digital marketing during the outbreak and enhance the online experience of consumers."

In addition, ye believes that luxury companies need to improve brand building and brand story. "In the Chinese market, 80 and 90 are the main buyers of luxury goods, but in fact, they do not know much about the history of brands, nor are they particularly concerned about them. Therefore, it is very important for new and old luxury companies to personalize the brand story and process design, and to create the eye that attracts young people.

Ye stressed that in general, luxury goods are more important than ordinary retail products and consumer goods. Luxury brands need to pay close attention to how to reach consumers and maintain brand tonality.

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