In the first part of our special report, we take a look at why the luxury market is rebounding, who the winners are, the reasons behind their success and how brands can learn from their example drawing upon insights from our own executive team at our parent company DLG as well as leading industry experts.
In the second part, we speak to leading figures in key luxury categories about what they are seeing in the market: from luxury watches and jewellery, to private banking and retail, we aim to give our readers a deeper understanding and insight into the trends happening in the market through their eyes. And in the third part, we analyse and discuss our findings from our data, surveys, and interviews to try to predict what may lie ahead in the coming months.
Luxury brands are seeing a return to growth, a stark contrast from a year earlier when the impact of the global COVID-19 pandemic began to take its toll on the industry. But what goes up, must come down. In the first instalment of our special report, we take a look at the reasons why the market is booming and what lies ahead in the coming months.
It first began with LVMH. Then Kering. Then Prada, Hermès and also Lamborghini. One by one, nearly all the major luxury companies and brands began to report their earnings for the first half of the year, and each noted the same thing: luxury was rebounding.
LVMH said it recorded revenue of €28.7 billion, up 56 percent compared to the same period in 2020. Kering posted a 54.1 percent rise in consolidated revenue of €8 billion, while Prada said it saw a 66 percent jump in total net revenues. Richemont’s group sales rose by 129 percent to €4.4 billion. And last but not not least, Hermès’ consolidated revenue rocketed to €4.2 billion, up 77 percent.
The return to growth came as a stark contrast from a year and a half earlier, when the very same companies found themselves having to think on their feet and act quickly in response to the global COVID-19 pandemic, embracing new ways of working, digital technologies and adapting quickly to the challenges that arose from multiple lockdowns and store closures the world over.
Now, with the tentative easing of restrictions, it appears luxury is on a rebound.
Certainly, the conditions for the rebound have been supportive. With governments all over the world propping up their economies with fiscal stimulus packages, what would have been viewed as an economic crisis has largely been avoided, and consumer sentiment remains positive thanks to factors like low interest rates, unemployment protections and of course, a buoyant stock market - all the major indexes have grown at double-digits rates since a year-to-date.
Add into the mix, an increased availability of wealth from luxury consumers unable to spend on travel, dining, and experiences, and voila, a perfectly captive audience ready to release their pent-up demand for luxury purchases across the board.
It comes as no surprise that the luxury behemoths, with their strong established brands and diverse categories and geographies, as well as deep pockets to draw resources from have emerged as the winners during the pandemic. It is a well known saying that in times of crisis, consumers tend to favour more established brands, seeking out what they know rather than exploring what they don’t.
For certain, Louis Vuitton, Chanel, Cartier and Hermès, to name but a few, have all seen a rise in brand desirability, according to data compiled by DLG, which found that Google searches for the brands have grown by 15 percent, 11 percent, 39 percent and 21 percent respectively, from January 2021 to June 2021, compared to a year earlier.
In addition, search interest for their iconic products like Louis Vuitton’s Speedy Bag, Chanel’s 2.55 bag, Cartier’s Love bracelets or an Hermès Birkin bag rose by 60 percent, 38 percent, 38 percent and 18 percent, further demonstrating the importance of a brand’s signature products during a crisis.
And what helped drive this interest, was the agility of these brands to respond to the crisis, by laying the groundwork for omnichannel capabilities, through e-commerce, logistics and supply chains, but also through the creative ways they thought of to engage their consumers.
“The speed at which some of the big brands were able to react was surprising,” said Alain Zimmermann, Managing Partner at DLG. “A large part of their success has been the digital initiatives they have put in place to compensate for the closure of their retail stores, and the way in which they have been able to maintain a dialogue with their customers. This has undoubtedly been a lasting advantage for brands that have demonstrated responsiveness, innovation and agility.”
On top of this, with luxury consumers unable to travel or spend their disposable income on hospitality, entertainment or experiences, this has created a huge appetite for “revenge spending,” not just for purchases online but also on a local basis too. Once stores were able to reopen in China, after the easing of restrictions and resumption of a more “normal” way of life, brands that had established their presence in China were able to take advantage of the market conditions, and gain a head start in their recovery, noting huge increases in sales from their affluent local customers.
“We’ve observed two things,” said Pablo Mauron, DLG’s Managing Director China and Partner at DLG. “The first thing is that brands that suffered the least from the pandemic were the ones that already had a major e-commerce ecosystem in place, which helped minimise the impact of the slowdown in traffic to retail stores.”
“When it comes to the rebound itself, brands that had a strong Customer Relationship Management system in place and who were able to aggressively reactivate their audiences by -as soon as it was safe - inviting their customers to their stores though big and small scale events, installations and pop-ups, have been more warmly welcomed by the luxury consumer, who at the moment are kind of stuck due to limited travel.”
The United States has also been a bright spot for luxury brands. LVMH reported that “the United States and Asia are up sharply since the start of the year, while Europe is experiencing a gradual recovery. Kering reported that its retail division, which includes e-commerce, second quarter comparable sales rose by 97.9 percent, driven by North America, which was up 263 percent. Europe, while further behind Asia and North American markets, is gradually recovering.
But we want to explore whether this rebound in the luxury market will last or not. While brands and companies may be benefitting from the easing of restrictions this summer, and the positive effect in consumer sentiment, the reality remains that effects of COVID are far from over and the luxury market will once again have to rethink how to adapt to the ever-changing landscape of this crisis.
“Reality is never a straight line,” said Mario Ortelli, Managing Partner of Ortelli&Co, a strategy and M&A advisory company specialised in the luxury goods industry, who believes the rebound in the market at present is an accelerated catch-up of spending condensed in a short period of time. “We are basically back at the level of 2019, and companies and brands will start to settle back to a more normalised growth rate. But, there is still a big question mark about the evolution of the pandemic and therefore, get ready for continued volatility.”
“If we were to see an acceleration of contagion and then lockdowns, spending would go down,” he added. “When you ease restrictions, then you’ll have a catch-up. And this is simply the situation we have at present.”
“I don't see the luxury market going down,” Ortelli noted. “The average long term growth of the luxury sector has been and, in my opinion, will continue to be at a premium of about 50-60 percent to GDP growth. Clearly we will see a lot of volatility going forward, but the fundamentals of growth of luxury demand in the long run are very solid.”
But what can we learn from those who have successfully navigated the challenges brought on by the crisis?
For us, there are seven key points to consider: preparation, investment, creativity, agility, locality, data and mindset. Here, we identify the best practices demonstrated by luxury’s leading brands and how they enabled companies to rebound so quickly back to growth.
In summary, it takes more than just a few moving parts to succeed in luxury, particularly during the challenging period that the world experienced during the first uncertain months of the COVID-19 pandemic. And only those who were able to leverage the opportunity as easily as some of the industry’s bigger brands were able to emerge triumphant.
What remains an even more significant question is what position the challenges of COVID-19 leaves upon the rest of luxury’s ecosystem and how they’re able to navigate through them without the support that many of the winners were fortunate enough to rely on.
In the next part of our special report, we’ll be talking to some of the industry’s leading experts in different segments of luxury, like Luxury Watches and Jewellery, Retail, Automotive, Real Estate and Private Banking, to discuss what they’re seeing and experiencing in their categories, the biggest challenges that they face and where they think the future of the market is headed.
Stay tuned for the next instalment here on Luxury Society.