The truth about the ‘slow down’ in luxury, both Europe and China
A recent survey based on discussions with sales staff at some of the major luxury flagship stores in Paris by Reuters (article re-published and edited by the businessoffashion.com), ‘reveals’ that the number of shoppers has been dropping, especially foreigners (surveyed sales assistants: Dior, Gucci, Hermes and Jimmy Choo)
A similar ‘report’ unveils Milan has been witnessing a slow down in footfall at luxury stores such as Bottega Veneta, Chloé and Christian Dior in Paris; Longchamp and Ermenegildo Zegna in London and Valextra in Milan.
The same report has singled out Chinese as the most important target segment which has recently dwindled at major luxury stores. Vuitton’s last week announcement of a second price increase in Europe is also given as a possible cause for the slow down in footfall at luxury stores.
I cannot call such surveys ‘reports’ but rather speculations and such news, coupled with the current financial crisis in Cyprus can only have a negative long term impact on luxury, which could lead to an inhibition and even an anti-luxury sentiment. However, the only to be blamed are the luxury companies themselves and not the media. Back in February, CPP-LUXURY.COM, has formally approached 9 of the major luxury brands operating mono-brand stores in Germany and received no response, even if the questions did not imply specific sales figures but overall variantion in sales. We received 3 negative answers, while the other 6 luxury companies ignored our repeated e-mail requests.
Luxury brands do not realize that research conducted by business media, even online, may actually help them. Especially in our case, CPP-LUXURY.COM covers all luxury sectors, therefore, we are able to pulse all the other sectors and understand whether there is indeed a drop in occupancy at luxury hotels, whether people buy less or more online or even whether Chinese travellers are fewer at downtown Parisian flagship stores but they are more at the major outlet malls outside the big European cities (Paris, Milan, Barcelona and Rome).
As long as luxury brands continue to rely strictly on their own data and are neither able nor willing to research other luxury sectors, they will be facing more negative ’surprises’ such as the one in China. Although many of the top luxury brands operating in China have been seeing their sales drop for 3 years, they have only been open about this, earlier this year.
I would certainly not blame politics in China and their new clampdown on corruprtion as a potential negative factor for the luxury industry. On the contrary, the less money, private companies need to spend on bribes, the more cash they will have available, possibly for personal luxuries. Of course, the ‘easiest’ sales were the bulk ones made to State Authorities!, especially when it comes to cars – no additional marketing expenses. Many of these brands are now facing competitives and thus, they need to research and truly understand the Chinese consumer.
Luxury watches should not focus on how gifting has or will change in China, but rather, they should ask themselves, what they have done in China in terms of creating awareness and educating consumers. Blaming it on gifting implied that Chinese wealthy would automatically grab a well known brand with a recognizable design when gifting a state official. What about craftsmanship, precious materials, heritage or the complications of a luxury timepiece? Many luxury watch brands in China have limited their marketing activities to spending on outdoor and print media, translating western ads.
All recent data has been showing that the number of Chinese travelling to Europe is on the rise, for some cities in double digits. So, why are luxury stores in Milan and Paris seeing less Chinese? Some of the reasons which I identified (speaking to Chinese consumers) may be:
- Chinese who travel to Europe are not necessarily the HNWI’s who still buy their expensive luxury products in Hong Kong, Macao or Seoul
- an increasing number of Chinese are only now discovering that luxury is an integral part of luxury lifestyle! one cannot wear a Prada bag and drive a Ferrari to feel that they belong to an elite ! and this is how, they slowly but surely upgrading their accommodation from four star to five star, therefore, spending more on travel arrangements, which might decrease their shopping budget
- more Chinese are discovering that investing in art can have lasting and secure long time benefits (compared to a seasonal crocodile bag by a famous brand)
- luxury real estate, especially residential, is beginning to attract more wealthy Chinese buyers – once again, making them think twice about how they allocate their expenses
- more Chinese are discovering the larger outlet villages / malls outside the big cities such as Barcelona, Milan, Rome, Paris and London; they come to terms with the fact that, this is not diminishing neither the shopping experience and, moreover, there is nothing ‘wrong’ in purchasing goods from outlet centres – these products are genuine and with the same money, they can buy more ! (such large outlet centres do not exist in China)
- more Chinese are discovering ‘mix and match’ – there is nothing wrong and it can even be more ‘cool’ to wear a Zara T-short with an Hermes Birking bag
- the anti-luxury sentiment, which has been growing in intensity, mainly driven by pop culture and social media, is gathering pace not only in the U.S. or Japan, but also in emerging markets such as Russia, China or Brazil
As for the other European countries, I believe Spain and Germany will continue to benefit from a growing number of wealthy Chinese, in the case of Spain, they are increasingly attracted by the tourism destinations, while Germany provides top quality medical services. Italy continues to remain an ideal destination for consumers such as Chinese, offering a vast leisure product as well as great luxury shopping. In comparison with France, Italy offers a more authentic experience – which re-creates Made in Italy, not only through craftsmanship but through Italian lifestyle. Italians are more welcoming and probably more genuine in their welcoming of travellers from emerging markets such as China.
The real danger for luxury brands is not politics but about staying relevent as an integral and genuine luxury lifestyle ! Luxury cannot be taken as a whole! The synergies and interconnectivity between each sectors are vital to understand! Hotels need to understand fashion, watchmakers need to understand hotels etc. Only through a coherent understanding of the luxury consumer, will the luxury industry be able to ripe the benefits of China’s boom for the long term.
Oliver Petcu in Paris