As the luxury industry farewells another eventful year, Euromonitor International reviews its 2014 luxury goods predictions to see what really happened
RETAIL
A Review of the Luxury Goods Industry in 2014
This is the featured image caption
Credit: This is the featured image credit
Over the last decade, collaborations between luxury brands and contemporary artists have gone beyond mere artistic partnerships towards a new kind of luxury branding.
PARIS – Art and fashion have always developed side by side, for fashion, like art, often gives visual expression to the cultural zeitgeist. During the 1920s, Salvador Dalí created dresses for Coco Chanel and Elsa Schiapparelli. In the 1930s, Ferragamo’s shoes commissioned designs for advertisements from Futurist painter Lucio Venna, while Gianni Versace commissioned works from artists such as Alighiero Boetti and Roy Lichtenstein for the launch of his collections. Yves Saint Laurent’s vast art collection, recently auctioned at Christie’s in Paris, testified to his great love of art and revealed the influence of a variety of artists on his own designs.
In the 1980s, relationships between luxury brands and artists were advanced when Alain Dominique Perrin created the Fondation Cartier. In the Fondation Cartier pour l’Art Contemporain, a book marking the foundation’s 20th anniversary, Perrin says he makes “a connection between all the different sorts of arts, and luxury goods are a kind of art. Luxury goods are handicrafts of art, applied art.”
The Fondation Cartier pour l’Art Contemparain building in Paris
As the luxury industry farewells another eventful year, Euromonitor International reviews its 2014 luxury goods predictions to see what really happened
Mulberry CEO Bruno Grillon exited in 2014
Of the twenty predictions made by Euromonitor International in January 2014, twelve of them came true. Despite the accuracy of more than half of our predictions, it proved difficult to find a cohesive message within our findings other than the industry continues to rapidly change.
What these findings did highlight is the different ways in which luxury brands are managed and the impact this has on their sales, consumers and ubiquity. In 2014 we saw luxury brands actively chase the middle-market with affordable mass products and succeed beyond our wildest dreams.
Then we saw a number of iconic historic luxury houses take their product offering further upscale to little short-term gain. Many revenue figures were disappointing and executives were moved along, as the industry proves that there is no one science to managing a luxury brand.
“ The industry continually proves that there is no one science to managing a luxury brand ”
Where we saw less than expected activity was in the M&A; sector, as many big name independent luxury brands remained independent, despite rumors of conglomerate takeovers, private equity investment or big IPO’s.
Based on previous years of rampant purchasing and currently overflowing cash reserves, we expected to see conglomerates look into new industries and geographical regions for their next big-buy.
But aside from minority investment in a handful of up-and-coming designers, the M&A; space was relatively quiet in comparison to previous years.
We invite you to discover our review below and look forward to sharing our 2015 predictions in the coming weeks.
Cosmetics proved to be a new growth driver in 2014
The Hits
A change in leadership at Mulberry
Bruno Guillon quit in March after two years as Chief Executive. His strategy was flawed, we believe, from the start. His biggest mistake was in pushing Mulberry too upmarket and then refusing to change tack despite oodles of market pressure.
The U.S. was the largest growth market
In absolute terms. There has been a pivotal shift in geographical growth this year, from Asia Pacific to the US. It has been a recurring theme in the quarterly financial results of the leading global players.
India was the fastest growth market
In percentage terms and based on markets with an annual retail value of more than US$ 1 billion. Rising prosperity in tier 1 cities coupled with a big shift from the black market to the formal retail market has turned India into one of the world’s most attractive markets for new luxury goods investment.
Spain, Italy and France grew at the weakest rates
They constitute three of the five weakest-performing luxury goods markets of 2014. It has not been all bad news, though. Luxury accessories, for example, have shown a high level of resilience.
Luxury goods spending in China accelerated
China’s total luxury goods market is on course to grow 7% this year (at fixed US dollar prices), double the rate of last year. Gift-giving categories are still under downward pressure, but designer apparel and luxury accessories are resurgent.
“ Michael Kors has taken affordable luxury to new heights ”
Michael Kors spearheaded dynamic growth in affordable luxury
In the US, especially, Michael Kors has taken affordable luxury to new heights. But, growth rates on a comparable stores basis have slowed in the second half of the year. Is this a sign, perhaps, that the “Kors bubble” is about to burst?
Luxury cosmetics was one of the fastest growth categories
Designer labels, in particular, have built strong new positions in super-premium cosmetics (the likes of Burberry, Marc Jacobs, Jason Wu and Tory Burch). Beauty care is now Burberry’s fastest-growing business segment, for example.
Hermès rose from strength to strength
Hermès, in particular, has shown great skill in navigating the tricky operating conditions in China. Discreet branding and an untarnished reputation for exclusivity go to the heart of its competitive edge.
Online discount activity grew for luxury brands
Discounting is widespread in the online channel and reflects a glut of supply in some categories. It poses a potential image problem for some of the mid-market brands that are looking to push their portfolios upmarket.
Burberry’s continued to lead innovation on social media
Luxury brands began to engage proactively with social media platforms
High-profile digital innovations include the “buy now” button, piloted by Burberry in a tie-up with Twitter, and Michael Kors’ efforts to unlock the sales potential of Instagram. Most global brands have forged a stronger social media presence this year.
Leading luxury goods players invested in young fashion designers
LVMH took a minority stake in Italian designer Marco de Vincenzo, for example. Niche investments have not been all about young fashion designers, though. Kering teamed up with Kelly Slater, a professional surfer, to bring a new line of surf apparel to the market.
World Cup tourism drove up luxury spending in Brazil despite the cooling economy
Affluent Brazilians largely stayed at home in June and July rather than travel abroad. Additionally, there was a big influx of international visitors, fuelling a spike in shopping mall footfall. Brazil’s luxury goods market is on course to grow 10% in 2014 (at fixed US dollar prices), its strongest performance in three years.
“ Big M&A; activity was quiet in 2014 ”
The Misses
Luxury jewellery was not the target of a major M&A; deal
There was more interest in vertical over horizontal acquisitions. Leading jewellers want greater control over the whole route-to-market process, from raw materials to retail. A current example is Chow Tai Fook, which is sizing up stakes in diamond mines.
Private equity did not acquire one or more of the following brands: Salvatore Ferragamo, Brunello Cucinelli, Tod’s, Ermenegildo Zegna
In fact Tod’s has latterly been eyeing up its own acquisitions, notably of footwear brand Roger Vivier. Private equity was still a mover and shaker in the industry, though. Blackstone bought a 20% stake in Versace and Russia’s VTB Capital came close to a 70% stake in Roberto Cavalli. The latter deal fizzled out in November due (mainly) to economic instability in Russia.
There was no surprise or off-the-radar mega deal
Big M&A; activity was quiet in 2014. The focus was on organic growth and niche investments. Asian buyers, in particular, seemed ready to pounce at the start of the year, but a cocktail of unfavourable external pressures held things back.
The boom in real fur did not fizzle out
Fur was still high profile on the winter catwalks, especially in London and New York. The fur industry has sought to rebrand itself as ethical as well as luxurious, and consumers – young women especially – are buying in.
Luxury wines and spirits were not the weakest luxury categories as expected
Global sales recovered quite well in 2014 despite a continued slowdown in China (due mainly to the clampdown on gift-giving). Demand was notably upbeat in Brazil, Japan (first quarter of the year), Russia (first half of the year) and the US.
Despite persistent m&a; rumours, Roberto Cavalli remains independent
The Jury’s Out
Global luxury brands will build new positions in sub-Saharan Africa
Yes and no. The region continues to generate huge investment interest, fuelled by its burgeoning wealth and highly favourable demographics. However, global luxury brands have been reticent about building stronger positions – in part because they are concerned about the legitimacy of Africa’s new wealth and how this might impact on brand image.
The over-65s will be the target of high-profile advertising and marketing campaigns
Yes and no. This is the fastest-growing demographic for internet connectivity and e-commerce, and widely recognised as a key market for luxury goods. However, most advertising and marketing this year has been age neutral rather than age specific.
Mexico will be the focus of some of the strongest emerging market investment
Yes and no. Mexico has the biggest luxury goods market in Latin America, and there has been significant new investment in Mexico City and a host of mid-size cities. However, the economy has struggled in 2014, which has tempered some industry initiatives.
To further investigate the industry year by year on Luxury Society, we invite your to explore the related materials as follows:
– 2014 Luxury Industry Predictions from the Experts
– 5 Trends That Defined The Luxury Industry in 2013
– 2013 Luxury Industry Predictions from the Experts
Head of Global Luxury Goods Research, Euromonitor
Fflur Roberts manages the research programme for the global luxury goods industry at Euromonitor International, which she joined in June 2000. In her current post, Fflur Roberts has direct responsibility for the content and quality of Euromonitor’s luxury goods research, which provides strategic analysis of the global market and in-depth coverage of the industry in 32 countries worldwide. With Fflur at the helm of Euromonitor’s luxury goods research the company was awarded Luxury Researcher of the Year 2016 by global media company Luxury Daily and in 2017 was on the Luxury Women to Watch list. Fflur has written extensively in the field of business and luxury and in her time at Euromonitor has authored numerous global strategic reports and is often referenced in the international press on the luxury business and has addressed luxury leaders at many leading global luxury conferences around the world. Presently Fflur is co-editing a chapter on the USA and European luxury market for The Oxford Handbook of Luxury Business (Oxford University Press, forthcoming).
