Source of this article: Times Finance Author: Zhou Jiabao
The luxury goods that have risen in price repeatedly cannot be sold.
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On May 15, local time, British luxury group Burberry announced its results for the 2024 fiscal year. Burberry's revenue fell 4% year-on-year to £2,968 million for the year ended March 30, while adjusted operating profit plunged 34% to £418 million.
In the fourth quarter of fiscal 2024, Burberry's same-store comparable sales in Asia Pacific, EMEIA, and Americas all fell into negative growth. Among them, sales of comparable stores in the Asia-Pacific region fell by 17%, and in Chinese mainland fell by 19% year-on-year.
Burberry is not the only one that has been weak. According to the financial reports of a number of luxury companies, the pressure on the luxury industry is a foregone conclusion. The top luxury brands have begun to bid farewell to high growth, while the performance of some second-tier luxury brands has shown a regressive trend. After nearly two years of price increases, high-profile luxury brands are facing growth challenges, especially in the Chinese market.
Luxury goods are no longer selling, and the opening of stores is slowing down
Luxury brands are doing weakly, and their performance in the Chinese market is not encouraging.
In April this year, Kering released its first quarter 2024 report, with sales down 11% year-on-year to 4.504 billion euros. The sales revenue of the core brand Gucci (Gucci) fell 21% year-on-year to 2.079 billion yuan. In addition, the sales performance of brands such as SAINT LAURENT and Bottega Veneta also declined to varying degrees.
In the Asia-Pacific region, where the Chinese market is located, Gucci's main brand saw its sales decline by 28% in the latest quarter, making it the region with the largest decline. Kering expects Kering's recurring revenue to decline by 40% to 45% in the first half of 2024.
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Even Hermès Group, which has dominated the luxury market in the past few years, appears to be slowing down in the Chinese market. In the first quarter of this year, the Group's consolidated revenues amounted to 3,805 million euros, up 17 percent year-on-year at constant exchange rates.
China's Asian market (excluding Japan) saw a 14% year-on-year increase in revenue, but it was still slowing down from the 23% growth rate in the same period last year. In the first quarter of 2023, Hermès Group said that the high growth in the Asian market was driven by factors such as the Chinese New Year, however, in the report for the same period this year, the group pointed out that Greater China traffic showed a downward trend after the Chinese New Year.
LVMH (Louis Moordien), another leading luxury group, is also not having a good time. In the first quarter of 2024, a number of LVMH businesses fell short of expectations, with organic sales in Asia, which has always been strong (excluding Japan), down 6%, the only negative growth region in the reporting period.
Chinese consumers' enthusiasm for luxury goods has waned, as can be seen from the performance of high-end shopping malls. According to Swire Properties' Q1 data, retail sales at Taikoo Li Sanlitun in Beijing, INDIGO in Beijing, Taikoo Hui in Guangzhou, HKRI Taikoo Hui in Shanghai and Taikoo Li Chengdu fell by 5.4%, 2.4%, 9.2%, 19.4% and 14.7% respectively.
Not only that, but luxury brands are also starting to cautiously open new stores. According to the latest research data from Savills, the number of new luxury store openings worldwide will decrease by 13% year-on-year in 2023. Although China is still an important position for global luxury brands to expand, accounting for 41% of the total number of new stores in the world, the absolute number is still down 12% year-on-year.
The agency also noted that weaker consumer confidence and domestic spending in China have an impact on tenant confidence in the country, "and we expect this to extend to early 2025".
After the price increase in turns, why don't consumers pay for it?
Over the past few years, the global luxury market has shown incredible strength, with high growth rates that are the envy of all consumer retail sectors. Why is the global luxury market in the doldrums today?
Zhou Ting, president of the VIP Research Institute and a luxury expert, told Times Finance that the weak global luxury sales are mainly determined by the state of the economy. At present, the high-spending class has little confidence in the future, and the wallets of ordinary people are limited. "The competition in the luxury industry has entered the stage of stock competition, and the incremental consumption brought by the upgrading of mass consumers in the short term has been very limited, and the core of competition lies in whether high-end consumers can sustain and increase consumption."
She believes that compared with the global luxury market, the reasons for the weakness of China's luxury market are more complex, including the outflow of luxury consumption due to the resumption of outbound travel; excessive price increases for luxury brands; High-end niche brands, designers and other "nobles" have diluted the market of traditional luxury brands; The rise of China's high-end brands has also undertaken the substitution of some international luxury brands.
LVMH also mentioned in its report for the first quarter of this year that sales in the Asia-Pacific market, where China is located, declined, mainly due to the recovery of offshore tourism. At the same time, a number of media reported that Chinese tourists poured into Japan to grab luxury goods due to the record low yen exchange rate.
Tang Xiaotang, a fashion analyst at No Agency, also pointed out that luxury consumption in the Chinese market has its uniqueness, and a considerable part of the luxury sales revenue in the Chinese market comes from the potential consumer class, but the wave after wave of price increases in the luxury industry has made these potential consumers "flee".
He added, "Some brands have deviated from their brand value after multiple price increases, and some consumers who can afford to do so will choose luxury brands with higher value." ”
This year, after the global price increase of CHANEL (Chanel), the price of CF classic handbags in the Chinese market has exceeded 90,000 yuan. There is a lot of buzz on social media about the fact that CF classic bags are more expensive than many Hermès products.
Zhou Ting bluntly said, "Price increase is a means for leading luxury brands to consolidate their brand position and compete, and this behavior has driven a price increase boom in the entire luxury industry." Appropriate price increase is reasonable, and has the effect of promoting and enhancing brand image and brand value; However, excessive price increases and over-reliance on the short-term effects of price increases are tantamount to drinking water to quench thirst. ”
Luxury goods have begun to fall short of popularity in the Chinese market, and there is a trend of more rational consumption as a whole. According to the "2023 China Luxury Report" released by the VIP Research Institute, the luxury consumption of the VIC (very important client) group of Chinese VIP customers has also entered the stage of comprehensive cost performance measured by brand cost performance, product cost performance, and service cost performance. Consumers are becoming more rational and naturally less willing to pay for brand premiums.
Zhou Ting believes that China's luxury market will pick up in the second half of the year. "However, the trend of brand multipolarity is also inevitable, and the situation of luxury brands monopolizing the market share of luxury goods will gradually change. High-end niche brands, designer brands, Chinese intangible cultural heritage brands, and high-end custom brands will gradually play a greater role. She said.