Con­sumers turn crit­ics and cre­ators, dic­tat­ing when and where they en­gage with brands

China Daily (Canada) - - DEPTH - ByWANG ZHUOQIONG wangzhuo­qiong@ chi­nadaily.com.cn

Both the Chi­nese main­land and Hong Kong con­tinue to ex­pe­ri­ence a slow­down in spendin­gonlux­ury goods, with a slowing econ­omy damp­en­ing con­sumer con­fi­dence, said David Lung, man­ag­ing part­ner, con­sumer prod­ucts and re­tail sec­tors, Deloitte China.

He made the re­marks af­ter re­view­ing the third an­nual Glob­alPow­er­sofLux­u­ryGoods re­port pub­lished by Deloitte Global on June 7.

The re­port found that the av­er­age sales of each of the top 100 lux­ury goods com­pa­nies reached $2.2 bil­lion in 2015.

Sal­va­tore Fer­rag­amo SpA earned 321 mil­lion euros ($358 mil­lion) in rev­enue for the Jan­uary-March quar­ter of this year, down 1.8 per­cent year-onyear, ac­cord­ing to its in­terim fi­nan­cial re­sults for 2015-16 fis­cal year end­ingMarch 31.

The Asia-Pa­cific re­gion, its top mar­ket in terms of rev­enues, saw rev­enues fall by 3 per­cent year-on-year in the Jan­uary-March quar­ter, mainly due to de­te­ri­o­ra­tion of the busi­ness in Hong Kong and Ma­cao. The re­tail chan­nel’s rev­enue recorded a fall of6per­cent.

Prada Spa, which is traded on the Hong Kong Stock Ex­change, saw its profit for the full year to Jan 31 fall 26.6 per­cent to 3.3 bil­lion euros from 4.5 bil­lion euros.

Clearly, the eco­nomic en­vi­ron­ment be­came tougher for lux­ury goods play­ers in 2015 and the first quar­ter of this year.

Dif­fi­cult times in Asia had a sig­nif­i­cant im­pact on sales through­out the re­gion, es­pe­cially in­HongKong andMa­cao where a de­cline in lo­cal consumption and tourism hurt harder than else­where, said the re­port.

The Asia Pa­cific mar­ket’s net sales fell 4.4 per­cent year-onyear to 1.08 bil­lion euros in 2015, de­spite be­ing Prada’s lead­ing mar­ket, due to the down­turn in Hong Kong and Ma­cao.

The Chi­nese mar­ket ended the year with net sales of 705.8 mil­lion euros, down by 8.3 per­cent, for Prada.

The Deloitte re­port ex­am­ined and listed the 100 largest lux­ury goods com­pa­nies glob­ally for 2015, based on sales.

China is still driv­ing much of the vol­ume growth in lux­ury travel prod­ucts, and this will con­tinue as the next gen­er­a­tion of po­ten­tial lux­ury shop­pers come into the work­force and start ac­cu­mu­lat­ing wealth.

Over­all, Chi­nese con­sumers are the travel sec­tor’s big­gest spenders and they re­main strate­gi­cally im­por­tant for lux­ury brands. There are cur­rently over 400 mil­lion mil­len­ni­als in China, which is more than the work­ing pop­u­la­tions of the US and Europe com­bined.

Prices are no longer their pri­or­ity or a con­cern; in­stead, they are more keen on buy­ing brands and prod­ucts with high qual­ity and char­ac­ter, the re­port said.

Many wealthy Chi­nese tourists are stay­ing away from the Hong Kong mar­ket, the re­port said. The mid­dle class con­sumers who used to vis­itHong Kong mainly for shop­ping are now turn­ing to over­seas mar­kets or cross-border e-re­tail­ers for bet­ter prices.

On the Chi­nese main­land, the slowing econ­omy has re­sulted in lower spend­ing; the gov­ern­ment mea­sures against lux­ury gifts in the cor­po­rate sec­tor have also had an im­pact.

“There is a shift in the lux­ury path-to-pur­chase. Em­pow­ered by so­cial net­works and dig­i­tal de­vices, lux­ury goods con­sumers are dic­tat­ing in­creas­ingly when, where and how they en­gage with lux­ury brands,” said Pa­trizia Ari­enti, fash­ion and lux­ury sec­tor leader, EMEA re­gion, for Deloitte Global.

“They have be­come both crit­ics and cre­ators, de­mand­ing a more per­son­al­ized lux­ury ex­pe­ri­ence, and ex­pect to be given the op­por­tu­nity to shape the prod­ucts and ser­vices they con­sume.”

Ira Kal­ish, chief econ­o­mist, Deloitte Global, said, “The global lux­ury goods sec­tor is ex­pected to grow more slowly this year, at a rate many re­tail­ers may find dis­ap­point­ing.”

“The growth rate is slowing in im­por­tant mar­kets such as China and Rus­sia, although some mar­kets con­tinue to per­form well and there are pock­ets of op­por­tu­nity across the globe. In­dia and Mex­ico, for ex­am­ple, are grow­ing quickly, and theMid­dle East of­fers fur­ther growth po­ten­tial.”

The key find­ings of the re­port also in­cludes lux­ury’s new nor­mal — that the lux­ury goods sec­tor has now passed the mid-point of the “decade of change”. The first half was char­ac­ter­ized by the Chi­nese con­sumer and the ex­plo­sion in the use of dig­i­tal tech­nol­ogy. The sec­ond half of the decade is ex­pected to be char­ac­ter­ized by dis­ci­pline.

The ex­ter­nal en­vi­ron­ment is likely to change in cru­cial ar­eas, in­clud­ing an evo­lu­tion in con­sumer buy­ing be­hav­iors, the merg­ing of chan­nels and busi­ness model com­plex­ity, an in­crease in in­ter­na­tional travel, the grow­ing im­por­tance of the mil­len­nial con­sumer, and the con­tin­ued im­pact of the global econ­omy, ac­cord­ing to the re­port.

To be sure, de­mand for lux­ury goods is grow­ing. Sales for the world’s 100 largest lux­ury goods com­pa­nies con­tin­ued to grow de­spite eco­nomic chal­lenges, although the rate of growth was less than that in pre­vi­ous years.

Profit mar­gins were higher than the pre­vi­ous year and the po­lar­iza­tion of com­pany per­for­mances was greater, with more high per­form­ers achiev­ing dou­ble-digit sales growth and profit mar­gins, while oth­ers ex­pe­ri­enced dou­ble-digit sales de­cline.

Italy is once again the lead­ing lux­ury goods coun­try in terms of num­ber of com­pa­nies. With 29 com­pa­nies in the top 100, it has more than dou­ble the num­ber based in the US, which has the sec­ond-largest num­ber.

How­ever, Ital­ian com­pa­nies ac­count for only 17 per­cent of lux­ury goods sales among the top 100— these pre­dom­i­nantly fam­ily-owned Ital­ian com­pa­nies are much smaller, with av­er­age lux­ury goods size of $1.3 bil­lion, com­pared to $3.1 bil­lion for US com­pa­nies, the re­port said.

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