China Is Undoubtedly The Most Important Market In The Future Of Global Luxury Goods

　　 Recently, LVMH and Hermes have released their first quarter financial reports. Asian market, including China, seems to have become a new growth engine for luxury goods giants.

　　 LVMH

LVMH group last week released key financial data for the first quarter of fiscal 2022: sales rose 29% (organic 23%) year-on-year to 18.003 billion euros, up from 17% previously expected by analysts. Thanks to a statement from MH on Tuesday, both in the leather sector and in the leather sector. The division's first quarter sales rose 30% year-on-year, exceeding analysts' expectations of 17%.

Against the background of the epidemic situation and the situation in Ukraine, LVMH group has maintained a good start in 2022, with double-digit sales growth in almost all sectors. Luca Solca, a senior luxury industry analyst at Bernstein, an investment management firm, described LVMH's first quarter as "a high-profile start", saying that "this quarter's performance once again far exceeded industry expectations.".

At the same time, the data show that the whole Asian market (except Japan) contributed 37% of the sales volume of LVMH group in the first quarter of 2021. In a conference call with analysts on Tuesday, Jean Jacques guiony, chief financial officer of LVMH group, also said he was confident in the medium and long-term demand of the Chinese market once the situation returned to normal.

　　 Hermès

Following LVMH, herm è s also released the financial data for the first quarter of fiscal year 2022: the total sales volume was 2.765 billion euros, an increase of 33% at the current exchange rate and 27% at the fixed exchange rate, much higher than the 15% organic growth expected by the industry.

Similarly, in the context of the dispute between Russia and Ukraine and the epidemic situation, Hermes group's stores showed positive sales performance, while the U.S. and European markets showed outstanding performance, mainly driven by the accelerated development of all business lines of the group and the continuous growth of leather products.

Since this year, Hermes has increased its expansion speed in China. Hermes also surged 25.7% in the first quarter to 1.724 billion euros in the Asian market.

Eric Du halgouet, executive vice president of finance of Hermes group, said in a conference call with analysts that the Chinese market had a strong start in fiscal year 2022. Although three stores in Shanghai were temporarily closed due to the impact of the epidemic, the group was still confident about the performance of the Chinese market in the next quarter.

Both groups have shown great confidence and expectation in the Chinese market, but can the Chinese market under the epidemic situation really live up to the wishes of luxury brands?

China's luxury market under the epidemic situation

In order to explore the overall consumption potential of luxury goods in the Chinese market, it is necessary to review, observe and analyze the past domestic and foreign luxury consumption, so as to have a better insight and understanding of the development of China's luxury market, including a more comprehensive and profound understanding and control of the overall trend of domestic shopping centers and department stores.

According to previous articles of Bain consulting Evelyn Cheng, the global luxury consumption in 2019 was 281billion euros. Among them, Chinese consumers, including domestic and overseas consumption, accounted for 35%, about 98.35 billion euro (about 767.1 billion yuan at the exchange rate of that year). If the total domestic luxury consumption in 2019 is 234 billion yuan divided by 767.1 billion yuan at home and abroad, domestic luxury consumption only accounts for 30% of Chinese consumption in 2019, and 70% of Chinese luxury consumption value occurs overseas.

In addition, according to the report of Bain consulting on "luxury consumption in China will reach 736 billion yuan in 2021, up 36%", the global luxury consumption in 2020 will be only 217 billion euro, 23% lower than the 281 billion euro in 2019, while the global consumption in 2021 will reach 283 billion euro, 30% higher than that in 2020. The growth in 2021 benefited from the strong rebound of domestic luxury market in China and the United States, which led the global luxury market out of the trough.

Combining Bain's global luxury report with Italian luxury goods association and Italian luxury co Manufacturing Association on December 21, 2021, we can clearly see that the overall expenditure of Chinese consumers has decreased to a certain extent in the three years from 2019 to 2021. China's total luxury consumption, including domestic and overseas consumption, is 98.4 billion euro, 68 billion euro and 60 billion euro respectively. The share of global luxury consumption is 35%, 20% and 21% respectively.

In the past three years, China's luxury consumption has shown a systematic decline.

However, the explosive growth of luxury consumption in China is undoubtedly a great opportunity presented in the crisis, and also reflects the resilience and strong strength of China's luxury consumer market in the face of downward pressure. No matter how large the number of consumers in China and the large number of middle-class consumers in 2019 can not be stopped, even if there is a huge consumer base in China in 2019, whether it is a huge consumer base or a large number of middle-class consumers, we can not stop the flow of Chinese consumers.

Luxury brand manufacturers at home and abroad are also actively layout domestic shopping malls, department stores, duty-free stores and outlets and other major physical sales channels. In 2020 alone, LV opened three new stores in Shanghai. It is understood that Lv's commitment has a strong driving effect on the positioning support of high luxury shopping malls and the follow-up of many brands. Since entering Shanghai in 1992, it has only opened three stores in Nanjing West Road, Lujiazui and Huaihai Road in Shanghai for 30 years.

The pressure of luxury brands

There is nothing to stop Chinese consumers from buying and buying. With the increasingly mature domestic luxury business environment, the Chinese market is becoming more and more important for global luxury brands.

However, for the major luxury brands, the Chinese market environment is obviously different from the traditional regions such as Europe, America, Japan and South Korea. Although the Chinese market has released the bonus opportunity of rapid growth of luxury goods, the pressure of luxury brands' operation in the Chinese market still exists.

At present, the growth of China's domestic luxury market is still mainly in the domestic market, and the main reason for the growth is the return of consumption caused by the epidemic crisis.

However, over time, the epidemic has passed, and the gate for Chinese people to travel abroad has been opened. It is likely that the luxury consumer market will be diverted overseas. McKinsey pointed out in its 2021 report on China's consumer market that "Asian consumers buy luxury goods abroad not only because the price in Europe is lower, but also because shopping has become an integral part of the travel experience, and buying in the place of origin of the brand can give people a real and pleasant feeling.".

McKinsey finally mentioned that although brand makers should seize the opportunity in the crisis, they should also have a long-term vision and be prepared for the "new normal" that is bound to come in the future.

From a global perspective, we can see the changes and trends of luxury market in recent years. As China led the world out of the trough after the global financial crisis in 2008, the mainstream view of the industry at that time was that China's luxury market would grow at a rate of 25% a year, surpassing Japan at that time and becoming the world's largest luxury consumption country in 2015. However, due to the uncertainty of the market, the development of China's luxury market suddenly slowed down. Today, China's luxury consumption still ranks behind the United States and the European Union.

Therefore, it is very important for luxury brands, shopping centers and department store operators to formulate future development strategies according to the time and place.

In addition to the above problems, the greater challenge is that the post-90s and even younger post-00s have become an important user group of luxury brands, and their behavior preferences and brand needs are different from those of their predecessors. Therefore, the marketing logic of the brand needs to be adjusted accordingly; On the other hand, due to the digital transformation, China's first and second tier cities have become one of the most digital regions in the world. Most of them were born in luxury brands in the pre industrial revolution era. How to carry out digital transformation is no small challenge.

The development trend of luxury goods in the future is very obvious. Undoubtedly, the Chinese market will become the most important incremental market and the place to be contested in the future of global luxury goods. But the premise is that luxury brands should learn how to solve the new challenges brought by the Chinese market as soon as possible.