Recently, a rich woman and friend around me exclaimed that if they wanted to buy a small Hermès satchel, they had to buy a diamond necklace together.
The so-called tie-in sale of scarce goods has long been an open rule in the luxury industry, and a large number of bloggers on a red book are happy to share various tie-in purchase tips.
So why are luxury brands so arrogant to their customers?
Simply put: don't worry about customers. According to economic principles, it is in a seller's market.
Hermès sells diamond jewelry displayed by Moments
In 2020, the first year of the pandemic, global luxury sales declined due to quarantine measures. In 2021, with the liberalization of European and American countries, the luxury industry achieved strong growth, compared to 2019 before the pandemic.
Among the many luxury brands, CHANEL, DIOR, Hermes and LV are recognized as the most investment-worthy brands.
In 2021, CHANEL retail sales reached 11 billion euros, a year-on-year increase of 49.6%.
In 2021, DIOR's retail performance was 6.42 billion euros, a year-on-year increase of 43.6%.
In 2021, Hermes retail sales reached €8,982 million, up 42% year-on-year.
In 2021, LV's retail performance reached 16.7 billion euros, firmly occupying its position as the largest luxury brand.
LVMH Group, which has two of the four major investment brands, achieved sales of 64.2 billion euros in 2021, 44.651 billion euros in 2020 due to the global epidemic, and achieved 44% growth in 2021, and LVMH Group sales results in 2022 have been disclosed, totaling 79.2 billion euros, with a year-on-year growth rate of 23.3%, continuing to maintain high growth.
LVMH sales performance in 2020-2021
PICTURED: LADYMAX
In 2021, sales of all categories of personal luxury goods (including but not limited to leather goods, clothing, jewelry, and watches) were 349.7 billion euros, a year-on-year increase of 25%. The four major brands CHANEL, DIOR, Hermes and LV contributed about 12.3%, significantly leading the growth of consumption in the entire luxury category.
The world economy is in decline, how did the rich suddenly become so rich?
In fact, it is not the rich who have increased their total assets, but the rich who have adjusted the way they allocate their capital - they have begun to invest in luxury.
LV hard case that needs to be booked in advance
Figure: louisvuitton.com
How does luxury become an investment?
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The purpose of investment is the appreciation of money, and the reason why luxury goods can become investment goods essentially stems from its cultural attributes and scarcity that allow it to be accurately targeted to a specific small number of consumers who are willing to invest in it and sell it at a higher price.
STEP I price increase
On July 1, DIOR doubled the price increase, and the average increase of each product line is expected to reach 15%, which will be higher than the 10% rumored at the beginning of the year. Big brands have increased prices year after year, constantly raising people's awareness of luxury prices, creating a sense of experience that luxury goods have the function of preserving value and adding value.
Luxury second-hand trading
Photo: Facebook
STEP II Distribution Channels
Auctions are the main public channel for luxury goods to appreciate and realize large amounts. The goods circulating in auction houses have higher scarcity, even if they are second-hand purchases, there is still room for appreciation in the future, and at the same time, because the luxury goods transactions of auction houses follow a strict personal information confidentiality system, which is almost the same as the confidentiality level of financial investment institutions, protecting the privacy of customers, it is favored by high-net-worth people.
Traditionally, the luxury category of jewelry and watches has the most potential for value-added investment, and it frequently attracts attention at auctions.
In 2020, Sotheby's sold the Cartier Tutti Frutti bracelet for $1.34 million
Photo: Cartier
Luxury goods have always been closely associated with auction houses, owned by François-Henri Pinault, who is also owned by Kering, one of the three luxury groups, including GUCCI, Saint Laurent, Bottega Veneta, Balenciaga and Alexander McQueen.
LVMH CEO Bernard Arnault also acquired shares in a number of small and medium-sized auction houses around 2000, adding luxury auction business to these auction houses.
The pandemic has stimulated the online use of auctions. Under the epidemic, the original ceremonial offline auction was justified and quickly shifted online, which while saving costs, drove the luxury auction market to sink, and spread the appreciation potential of luxury goods to more people.
Online seminars on luxury goods during the pandemic
In 2021, Sotheby's luxury online auction platform BUY NOW officially entered Asia, which mainly offers modern, vintage, limited edition sneakers and other fixed-price goods. Christie's has also created a tailor-made online Luxury Week auction collection for potential customers who like to buy luxury goods and art.
In non-public channels outside of the auction, some brands will also buy back some valuable products from previous buyers, and if the buyers themselves have a certain story, the cultural value of the goods is even greater.
CHANEL products for sale on Sotheby's website
Photo: Sotheby's website
STEP III Financial Institution Endorsement
Since the outbreak of the epidemic, the investment potential of luxury goods has also been endorsed by traditional financial institutions. The arrival of the epidemic has dampened the confidence of global investors, and high-net-worth customers lack confidence in financial wealth management products.
Luxury appreciation is on the agenda of high-net-worth clients, and financial institutions have even launched global luxury purchase services. Luxury-related content seems to be value-added services provided by financial institutions to maintain customers, but it quietly further endorses luxury investment, and with the packaging of traditional financial institutions, the investment attributes of luxury goods are more deeply rooted in the hearts of the people.
Cartier secretly bought back the Queen Elizabeth Crown of Bavaria from the Belgian crown, which was mainly used for exhibitions after the repurchase
Photo: The author took the Cartier exhibition at the Forbidden City in Beijing in 2019
Luxury investment powerhouse
How is it refined?
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In recent years, the Asian market has received special attention in the luxury research reports of major research institutions. While luxury spending was sluggish in 2020, China and neighboring South Korea were still experiencing positive growth.
According to Morgan Stanley's report, South Koreans' total spending on personal luxury goods surged 24% to US$16.8 billion in 2022, with the national average consumption per person of US$325, about US$55 Chinese about 6 times, while South Korea's per capita consumption is also higher than that of the United States, the home market of luxury goods, which spent US$280 per capita in 2022.
In March 2022, LVMH CEO Bernard Arnault visited South Korea, with Hong Luoxi, former director of Samsung Lakeam Museum of Art (widow of former president Lee Kun-hee), on the right, and Lee Fu-jin (eldest daughter of Lee Kun-hee), who heads the Shilla Duty Free under Samsung Group, the Samsung family, South Korea's top chaebol family
In 2021, South Korea's per capita annual income was US$35,000 (about 238,000 yuan), and the median was only US$21,000 (about 150,000 yuan), and the difference between the average income and the median was quite large.
From 2020 to 2021, South Korea's inflation rate soared from 0.4% to 2.5%, and ordinary people were heavily indebted, but even so, not only wealthy South Koreans are keen to buy luxury goods, but also a large number of wage earners have begun to join the luxury goods buying army.
Deep aging, large-scale transfer of manufacturing to foreign countries, and serious class solidification are the realities of South Korea, an emerging developed country.
A small number of wealthy people are the main consumers of luxury goods, and their real estate investment has reached a bottleneck, the impact of the epidemic on offline business and tourism has slowed down their investment in for-profit real estate such as hotels and resorts, and they have turned their attention to luxury goods in the absence of investment opportunities in the physical manufacturing industry.
Real estate is a traditional investment project for the wealthy in South Korea, and the most common occurrence of Bing search Korea luxury is still luxury apartments/houses, hotels, resorts
Photo: Bing
At the same time, due to the long-term suppression of the income of wage earners in the distribution and the continued high interest rate of home loans, ordinary people in South Korea are completely desperate for buying houses, so they turn their attention to luxury goods with a certain value preservation and appreciation and low investment.
In this way, the four major brands are in high demand in the Korean market, and the market price continues to rise at an alarming rate, and the price of CHANEL's classic clamshell handbag in March 2023 increased by about 75% compared to the end of 2019. The rise in luxury prices has attracted more ordinary people to enter.
Chanel classic flap handbag
Photo: Chanel
Before Korea, the situation of national luxury goods also occurred in Japan in the late 90s and early 20th century.
With the gradual hollowing out of the industry, the declining birthrate and aging, and the advent of the real estate bubble, the consumption of luxury goods in the Japanese has not fallen but increased, from Tokyo to Osaka, and even the per capita Chanel.
With the passage of time, the middle class who snapped up luxury goods gradually aged and needed pensions, coupled with the aging of leather goods, in order to improve the efficiency of luxury circulation, Japanese second-hand dealers actively looked overseas, cross-border sales of second-hand goods to the middle class in China and Southeast Asian countries to achieve a return on investment.
So much so that today, a large number of second-hand luxury bags from Japan appear on domestic e-commerce platforms, and it is not difficult to see from the style that some bags have a history of at least 20 years.
JAPANESE SECOND-HAND LUXURY GOODS DEALER BRAND OFF
Opened a flagship store on the Tmall platform
Photo: Taobao
Luxury investment boom in Japan and South Korea
Is it a coincidence?
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East Asian countries are generally keen to invest in real estate, and once real estate declines, people's idle funds will fall into the embarrassing situation of not knowing where to go.
China is also experiencing an aging and real estate decline, combined with the experience path of Japan and South Korea, after several years of continuous growth in the Chinese market.
Major luxury brands are still extremely optimistic about the Chinese domestic market in the next few years, especially the domestic high-net-worth market, for these daily consumption luxury customers, the real investment value of the potential items is not available for purchasing or overseas short-term stay, scarce goods are prioritized to supply customers who have long-term contact with local boutique SA, so brand giants are not worried about the sales of Chinese boutique channels being affected by daigou and second-hand channels.
The purpose of investment is to preserve and increase the value of wealth, and from a financial point of view, the high consumption of luxury goods is not so much the magic of consumerism, but a venture capital that requires the blessing of personal taste.
Investment behavior always follows the rules of "high risk and high return" and "no promise of return", ordinary people who need to invest in luxury goods with debt must remember this sentence: investment is risky, and you need to be cautious when entering the game.
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