The stalled Pandora, the apprehensive luxury industry

Source: Bohu Finance (ID: bohuFN) Author: Bohu team

Pandora, who had captured countless Chinese girls, could no longer be sold.

According to the latest financial report, in the first quarter of 2024, Pandora's sales in the Chinese market fell sharply by 17% year-on-year, which is far lower than the 9% growth rate in the European and American markets and the 18% growth rate in other regions. To make matters worse, from 2022 to 2023, its sales in the Chinese market have declined significantly for two consecutive years, by 47% and 9%, respectively.

At the same time as sales plummeted, Pandora's stores in the Chinese market also suffered a "wave of closures". The main store in Beijing's bustling business district, WF Central, has been replaced by high-end jewelry brand Cartier. Just last February, the Pandora store in Taikoo Li Sanlitun South was also taken over by fashion brand GANNI.

Pandora's performance in the Chinese market is no longer there, reflecting the changing consumption habits of Chinese consumers and the growth dilemma of the entire luxury industry.

Against the backdrop of the global economic downturn, many established luxury brands are also facing the same dilemma of declining sales as Pandora. In order to maintain brand value and market share, they have tried to respond to market pressure by raising prices. However, as consumers become more rational and prudent, price increases have had little effect, and the days of the luxury industry soaring seem to be over.

01

Why can't Pandora sell anymore?

"It's hard to find two bracelets in the world that are exactly the same", "A bead represents a story...... In those years, with its unique DIY product model and story-based marketing, Pandora set off a boom in the Chinese market.

Coupled with the "romantic" and "fairytale" style, the rapid launch speed and the image of an international luxury brand, Pandora has expanded rapidly since entering the Chinese market in 2015, opening more than 240 stores in four years.

In 2019, Pandora reached its peak, with sales of 1.97 billion Danish kroner ($284 million) in China.

But the good times did not last long, and since 2021, Pandora's sales in the Chinese market have begun to decline year by year. From DKK 1.126 billion (USD 162 million) in 2021 to DKK 564 million (USD 81.44 million) in 2023. In the first quarter of this year, it fell by 17% year-on-year, and sales were only 110 million Danish kroner (about 15.873 million US dollars).

Why can't Pandora sell? I think there are three reasons.

The first is Pandora's "low cost performance". Pandora jewelry uses a lot of cheap materials such as alloys, 925 silver, zirconia and enamel, which is also the secret of the gross profit margin of Pandora's products that exceeds 75% all year round. Putting aside the coat of international luxury brands, Pandora's high price is seriously inconsistent with low quality. Many consumers have reported that the inlaid gemstones will fall off after wearing them for a period of time, the bracelet will break as soon as it is pulled, and it is even more common for the ididation to turn black.

To make matters worse, Pandora doesn't hold its value. In the second-hand market, many second-hand luxury merchants will directly refuse to accept Pandora jewelry, and some merchants give a price of only "silver jewelry weight", ranging from 5 yuan to 10 yuan per gram.

In recent years, first-line luxury brands such as Gucci, Cartier, Tiffany, Bulgari and Hermès have launched entry-level jewelry at the thousand-yuan level. Compared with Pandora, these brands have a deeper brand effect and higher market recognition.

Third, the rise of the national trend, bracelets, pearls and niche national fashion original design brands have become the favorite of Chinese consumers. According to the "2023 Jewelry Consumer Trends Survey Report" released by Ipsos, 91% of Chinese respondents tend to buy jewelry with Chinese cultural heritage characteristics.

Taking the bracelet industry as an example, the trend of national disc strings continues to heat up, and bracelets such as Hetian jade, Bodhi, cinnabar, and small leaf red sandalwood have become trendy products. Jingdong consumption observation shows that since the beginning of this year, the turnover of bracelets has increased by more than 2 times, and the turnover of some popular single products has increased by more than 80 times year-on-year.

02

The luxury industry collectively "wintered"?

It's not just Pandora that can't sell, in fact, the entire luxury industry is stuck in a growth rut.

In 2022, the growth rate of global luxury sales will be as high as more than 20%, but the growth rate of luxury goods sales in 2023 will only be 7%. Old luxury brands such as LV, Hermès, Gucci and Balenciaga are also facing a decline in sales.

LVMH, the world's largest luxury group, achieved revenue growth of more than 40% and 20% in 2021 and 2022, respectively, but its growth rate slowed sharply to 9% in 2023, especially the group's jewelry and watch segment, which suffered a year-on-year decline of 5% in the first quarter of this year, with revenue of only 2.466 billion euros.

Kering, another heavyweight luxury group, has not been spared. In fiscal 2023, its revenue fell by 4% year-on-year, operating profit decreased by 14% year-on-year, and net profit fell by 17%.

In the first quarter of this year, its revenue fell further, down 10% on a year-on-year basis, with the core brand Gucci revenue of 2.1 billion euros, down 18% year-on-year. Based on the current situation, Kering expects recurring revenues to decline by 40% to 45% in the first half of 2024.

The second-hand luxury goods market has also been hit, with the share price of Farfetch, the world's largest luxury e-commerce platform, plummeting by more than 40% and its market value shrinking sharply. Similarly, the second-luxury e-commerce platform Secoo has also plummeted in market value and even encountered the risk of delisting, and the situation is not optimistic.

Entering 2024, the luxury market has once again set off a wave of price increases, trying to maintain brand value and fight against the economic cycle by raising prices. In the Chinese market, the prices of popular bags, watches and other products have increased significantly, some as high as 20%, and Chanel handbags are approaching the 100,000 yuan mark.

The logic behind the price increase of luxury goods lies in the "Veblen effect", that is, the higher the price of a commodity, the more attractive consumers are as an ostentatious consumption choice. At the same time, price increases are also seen as a means to increase brand retention and attract consumers who value their investments.

However, if the economy continues to weaken, price increases alone will not only not work, but may also lead to the depletion of market potential.

With the economic downturn, the average consumer's interest in luxury goods has weakened, and they have paid more attention to cost-effectiveness and practicality. One of the most noticeable changes is that the "Chinese girls" are buying gold, believing that it is a hard currency with a higher risk resistance than buying alloys with high premiums for the brand. Even on social platforms, some consumers have expressed their intention to sell their luxury goods and switch to gold.

The middle class, which has been touting the luxury sector in the past few years, has also begun to become cautious, with the disappearance of the Internet dividend, the recession of the real estate market and financial products causing their wealth to shrink, lack confidence in future income growth, and become more conservative in consumption and investment.

Coupled with the frequent and large price increase strategy of luxury goods, it has exceeded their tolerance threshold, and even if they want to buy it, they cannot do anything. At the same time, the middle class is increasingly inclined towards experiential consumption, such as skiing, camping, pilates and surfing.

At the same time, the interests of the wealthy class have gradually shifted from personal luxury goods to luxury hotels. According to a report by Deloitte, the global luxury travel market is expected to grow by 45% over the next five years to reach $2 trillion. Luxury hotels are becoming the new consumption hotspot, with Marriott seeing the all-inclusive resort business as an important growth area, the Ritz-Carlton launching a yachting service, and Accor planning to build the world's largest sailing ......

The concept of the "fourth consumption era" once proposed by the Japanese sociologist Miura Zhan - consumers are not willing to "pay" for excessive brand premiums, but begin to pay attention to the actual value, cost performance and consumer experience of products. This coincides with the current change in consumer trends.

As consumers become smarter and more rational, paying attention to ingredients when buying skincare products, ingredients when choosing beverages, and craftsmanship and materials when buying jewelry, the era of making money lying down in the luxury industry is over, and brands need to find a balance between traditional luxury and modern consumption concepts, which is the new way to survive and develop.

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