Several luxury goods companies reported a spike in China this spring as people emerged from weeks of closings, prompting what Analysts have described the trend of “revenge spending” – releasing pent-up demand as soon as people are forced to stay in their homes.
This was despite a nearly 40% drop in Tiffany’s global net sales in May. “Our business performance in mainland China, which was the first market affected by the virus, indicates that a strong recovery is under way,” CEO Alessandro Bogliolo said during the company’s earnings presentation on Tuesday.
“The data indicates that China is in a recovering state,” wrote Luca Solca, an analyst at Bernstein, in a note published late last month. Researchers at his company created a “rebound index” to track consumer confidence, indicating that sentiment among Chinese shoppers improved markedly until May.
Because of the recent elevator, China could be the only market in which luxury retailers see a turnaround this year, according to Claudia Darbisio, partner with Bain Consulting.
“It was actually very positive,” Edgardo Osorio, founder of the Italian shoe brand Aquazzura, told CNN Business. “China has always been, but now more than ever, one of the fastest countries [responsive] Customers. ”
Chinese customers may spend more money on commodities at home because they cannot travel that easily. According to analysts, two-thirds of the sales of Chinese shoppers usually occur outside China.
But most of the world is still dealing with the epidemic, limiting foreign trips and opportunities for people to spend any extra money.
“Instead of going on vacation, they might buy a Chanel bag,” said Fluor Roberts, head of Euromonitor’s luxury goods research division, adding that increased spending also occurs in other countries, including South Korea. “We are seeing signs of a return to the market somewhat.”
Darbisio indicated that some shoppers may be after a “psychological effect – to return to normality.”
The recovery in China is important because shoppers there are vital to the global luxury market. According to Payne, they make up 35% of all sales worldwide. Five years from now, consultants estimate that it could reach nearly 50%.
But the industry is still hurting
But success in China is only part of the story. As customers elsewhere stay away from luxury shopping in favor of basic purchases or inexpensive and unspeakable goods, sales of personalized luxury goods – including handbags, shoes, and clothing – are still expected to be severely affected.
Bain predicts that global sales of these items could drop by as much as 35% this year, with projected revenues from 180 billion to 220 billion euros (around $ 204 billion to $ 250 billion). This is compared to 281 billion euros ($ 319 billion) last year.
“The Coronav virus forces companies to rethink almost every business model,” said Roberts.
Darbisio said that the recent jump in sales inside China “does not compensate for the loss of sales of luxury brands by Chinese consumers worldwide.” “Public spending from China is much lower than last year.”
The strengthening of “revenge spending” is not expected to continue for long either. “We see this as a kind of temporary effect,” D’Arpizio added.
She pointed out that what the industry really needs are tourists from China or anywhere. “We expect travel to be the last driver to actually return to normal. It will take many months, maybe more than one year.”
How our shopping has changed
To adapt to the new reality of providing more food to the local market, companies will have to adjust their strategy and learn how to reach more local customers.
This prompted companies to open more stores in mainland China, cooperate with local artists and form partnerships with Chinese players. This trend appears to be accelerating.
And as travel is restricted, brands may have to adapt offers in every market, according to analysts.
This is the focus of business, which usually relies on the intersection of travelers and does not always spend much time devising strategies for individual countries.
“This is also a big change for stores in Europe that really meant more for tourists – a shop in Paris or a shop in Milan,” said Darbisio. Now, “the growth will come from local customers.”
Shops are here to stay
Some of the luxury luxury brands that are used to e-commerce are rethinking their strategies as well.
For example, Swiss watchmaker Patek Philippe started selling watches online for the first time due to the crisis, according to Roberts, a researcher at Euromonitor. The company did not respond to the request for comment.
This indicates a subtle shift, although some brands say that the appeal of going to a store in person will not disappear anytime soon.
“For me, my shops, I decorate it like my house,” said Osorio, president of Aquazzura. “You need physical presence because you want the final customer to appear and understand [the brand]”.
Darbazio believes that brands also see stores as an opportunity to “gain visibility”. That is why companies will continue to invest in stores in airports, even if no one is able to visit them at the moment, she said.
As challenges mount, Roberts noted, traditional retailing is “rooted in the entire luxury world.”
She expected companies to eventually reduce the number of stores they run, or the size of each store – but it’s likely not to fall back completely.
While Osorio defended the importance of the brick and mortar store, he admitted that the coronavirus had led him to think about his strategy in new ways.
The CEO recently embarked on a simplification of his business, deciding that instead of rolling out four groups a year, he would only make two sets. He also directed his team to restart their website to make it more mobile-friendly.
After two amazing months I was literally thinking, “How do I survive this? “How do I take my brand to the future?” Osorio said, “It was actually probably the most creative four weeks of my life.”