Sales Data Weak, Rising Prices, Luxury In The Next Game?

Since the end of July this year, major luxury goods have successively announced the second quarter financial report of 2020. Not surprisingly, the second report card of this year continued the decline in the first quarter. Even the several top luxury groups with the strongest anti risk ability continued to bear the double impact of store suspension and international tourism obstruction during the epidemic period, and the results were expected to be bleak. According to the performance reports of major luxury brands in the first half of this year, in order to stop bleeding in time, on the one hand, luxury brands will choose to "return to blood" through anti common sense measures such as "price increase"; on the other hand, brands also adopt a more active and positive attitude to put down their posture and embrace digitization or launch more diversified clothing branches, so as to recover losses to a certain extent.

The financial report "falls" endlessly

No luxury brand is immune to the downturn in the overall market.

According to the financial report data, the total revenue of kering group in the first half of this year decreased by 29.6% year-on-year to 5.378 billion euro; the operating profit plummeted by 57.7% to 952 million euro; and the net profit fell by 53% to 273 million euro. Among them, Gucci, the core brand known as "holding up the cloud and opening the sky", dropped 22.4% to 1.8 billion euro in the first quarter, and nearly doubled in the second quarter, with revenue falling 43.5% to 2.175 billion euro year-on-year. Overall, Gucci's sales fell 33.5% in the first half of the year to 3.072 billion euros, and its operating profit was almost halved to 929 million euros. Sales of other brands such as Yves Saint Laurent, Alexander McQueen and Balenciaga fell by 12.6% to 4.1% year-on-year.

In the first half of 2020, the total operating profit of LVMH group decreased significantly to EUR 18.75 billion, and the total operating profit of LVMH group decreased significantly to EUR 18.75 billion, and the total profit of LVMH group decreased significantly to EUR 18.75 billion. Although the sales of fashion and handbags led by Louis Vuitton and Dior were slightly more optimistic than those of watches and jewelry of TAG Heuer and Bulgari, the group's sales in the second quarter continued the decline of 17% in the first quarter, down 38% to 7.8 billion euro. "I don't think we've ever seen such a radical, one-sided, negative situation." From the perspective of big profits, such as Vuiton and Louis Vuitton, the chief financial officer of the group, such as Vuiton, is usually more resilient than the chief financial officer of Louis Vuitton. But the travel restrictions still hit other businesses like global duty-free stores. " Some investors and analysts believe that this is the most serious contraction in the history of the modern luxury industry.

Although the downward trend continued for two quarters, the financial reports of major brands specially pointed out a bright spot - compared with the ups and downs in the European and American markets, as the epidemic situation in Asian countries was first controlled and normal production and consumption resumed, luxury consumption also showed signs of recovery. Although the global business has been greatly hindered, but with the strong help from China, a big luxury consumer, the decline in the Asia Pacific market will not be too bleak. LVMH financial report said that the strong recovery of the Chinese market helped the Asia Pacific market narrow its revenue decline in the second quarter, from 32% in the first quarter to 13%; Kaiyun said that the unique Chinese market not only offset the negative impact of its first quarter store closure, but also showed a positive growth of 6.4% in the second quarter of this year, driving the decline of Asia Pacific market to 25% 。 However, the latest research by BCG shows that although China led luxury consumption is expected to further improve business data in the second half of this year, it is still not enough to hedge the losses caused by brands in other foreign markets.

The lower the sales, the higher the price?

Traditionally, luxury brands adjust their prices once or twice a year in order to maintain and enhance the value of their brands. In addition, the price increase adjustment can further narrow the price gap between luxury markets in various countries and regions. Generally speaking, the price of European handbags is lower than that of goods sold in China and other major luxury markets. For example, the prices of Dionysus and zumi handbags sold by Gucci in China are 28% and 23% higher than those in Italy respectively, while the price adjustment is expected to be narrowed Regional differences in selling prices. But more importantly, as the offline business of major brands has been forced to stagnate this year, the price increase is the most direct means to make up for the loss caused by offline stores of brands and maintain the soaring cost of logistics, labor and raw materials during the epidemic period. Therefore, during the period from May to June this year, the prices of major luxury brands increased collectively, which also led to the phenomenon of "queuing tide" in many places in China.

August 23, Guangzhou Taikoo Hui can still see the "queue tide" in front of luxury stores. Photo by Liang

According to the data, Louis Vuitton raised the price of its products again two months after May 5, with an average increase of 5% to 9%, about 1000 yuan to 3000 yuan, which was further increased compared with the increase of 600 yuan to 2000 yuan in March; Chanel took the lead in raising prices in European market on May 11, with the price of classic handbags generally increasing by 5% to 17%; Prada's product price was quietly increased by about 10%; Celine division broke up Bag style rose by 14.6% annually; Gucci, a little later, began to adjust prices in Italian, British and Chinese markets in June, rising by an average of 5% to 9%. "Gucci, a luxury goods analyst at Jefferies, an investment bank, told Reuters:" Gucci, with such a high brand popularity, eventually followed other brands in adopting an opportunistic price increase strategy to alleviate the loss of revenue. This is not surprising. " It is reported that in May this year, he has downgraded the rating of Open Cloud group from "buy" to "hold".

According to drizzie, a luxury writer at ladymax, although it seems illogical to implement a price increase strategy during the global crisis, it is actually an emergency mechanism for luxury brands to maintain their performance. In the short term, price increases can stimulate consumers to place orders before price increases and increase brand cash flow; in the long run, it can increase profits and make up for the loss of brand income during the epidemic period. But Luca Solca, a luxury analyst at Bernstein, a Wall Street investment bank, cautioned that the move could cause consumer resistance, so not all luxury brands would choose to raise prices.

Opportunity in danger

Fran ó OIS Henri Pinault, CEO of Kaiyun group, predicts that the stagnation of global tourism will last until the first half of 2021. In view of the uncertainty of the overall retail environment and the lack of visibility of the overall luxury market, it is impossible to predict the sales situation in the second half of the year. According to Bain's analysis and forecast, the overall sales of personal luxury goods will still shrink by 25% to 30% this year, and it will not return to the level of 2019 until 2022 or 2023. This means that major luxury brands need to be prepared for a long-term battle, and there may be at least two years of market downturn in the future. In addition, with the rising prices of luxury goods, how luxury goods prove their unique value to consumers in the "post epidemic" era, return to the essence of luxury goods, and provide consumers with better products and services, has become an important proposition that needs to be reflected in the near future.

During the outbreak of the epidemic, the channels of offline Direct stores were blocked, but most of the brand e-commerce business performance was strong, so many brands chose to accelerate the pace of digitization, hoping to establish a more real-time and close contact with consumers. LVMH group's brands have successively opened online official flagship stores. For example, Dior beauty has entered tmall and opened flagship stores. It will also carry out e-commerce live broadcasting in combination with the purchasing habits of the current millennials and generation Z. In addition to expanding the sales channels for online consumers and young consumers, gucci also launched a new remote shopping service "Gucci live" in Gucci 9 customer service center in Florence, Italy. Professional shopping guides reproduce the unique personalized experience of customers shopping in the store one-to-one through online video. In order to reduce the cost of fashion show, we should rethink the mode of fashion show and fashion show every year.

In addition, many new series products have been continuously launched by various brands to further enrich the product matrix of brands. For example, Louis Vuitton has previously launched a new summer suite and created special accessories for airpods. Such "cross border" operation is hotly discussed in the market. Gucci recently announced that it will add a "non binary" non binary gender department and launch a cross gender series Gucci MX led by Alessandro Michele, so that gender fluid people (gender fluid people think they flow between two or more gender identities) can also have a richer choice of fashion products.

2020 is undoubtedly a difficult year for the luxury industry, and the future is still full of unknown fog. However, there is an opportunity in crisis. By strictly controlling costs and flexibly enhancing Omni channel sales, we may expect more good news from the luxury industry after the economic recovery in the second half of the year.

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