Luxury goods that are not selling well
2024-08-07
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Faced with the same problem of slowing performance, different brands have adopted almost opposite strategies. Burberry and Yves Saint Laurent are trying to regain the market by cutting prices, while Hermès, LV and other top luxury brands are still on the road of continuous price increases. Industry insiders pointed out that in the future, a few leading luxury brands will further develop into high-end brands, while many other brands will move towards mass-market brands until they withdraw from the luxury brand camp. If luxury brands want to achieve better development, they should continue to adhere to the high-end strategy, attach importance to services, upgrade product operations to customer operations, and build a new business model with people as the center.
Luxury goods sales slowed down
Hermès has also not escaped the situation of slowing performance growth. Recently, Hermès released its financial report for the first half and second quarter of 2024. In the first half of the year, Hermès' revenue was 7.5 billion euros, a year-on-year increase of 15%, and its revenue in the second quarter was 3.7 billion euros, a year-on-year increase of 13.3%.
By region, in the first half of the year, Hermès' Japanese market rose 22.4% to 693 million euros, the Asia-Pacific region excluding Japan grew 9.9% to 3.521 billion euros, France grew 14.7% to 680 million euros, the rest of Europe grew 16.4% to 1.651 billion euros, and the Americas grew 12.6% to 1.329 billion euros. However, in the second quarter, the growth rate in the Asia-Pacific region was only 5.5%, a significant slowdown from 14% in the first quarter. In terms of market share, the Asia-Pacific market share, including China, dropped from 49% to 47%.
In terms of product categories, Hermès' leather goods and saddlery business generated revenue of 3.215 billion euros in the first half of the year, continuing to lead with a growth rate of 19.1%, but textiles and watches performed poorly, with the former only increasing by 1.5% and the latter decreasing by 0.2%. The decline was even more obvious in the second quarter, with revenues decreasing by 5.6% and 4.9%, respectively. Affected by the overall sluggish performance of the luxury goods industry, Hermès' stock price fell by about 2% at the close before the financial report was released.
Recently, major luxury brands have released their first-half financial reports, but the results are not ideal. In comparison, Hermès is still a leader. The second-quarter financial report of the Zegna Group shows that the group's organic revenue fell by 0.4% year-on-year; the net profit of Swiss watch group Swatch fell sharply by 70% in the first half of the year; LVMH Group's organic sales growth slowed to 1% in the second quarter of 2024, and sales in the Asian market (excluding Japan) fell by 14% year-on-year; Richemont Group's sales in the first quarter of fiscal year 2025 fell by 1% at the current exchange rate, while it increased by 19% in the same period last year; Kering Group, which has long faced a stall crisis, performed even worse, with revenue of 9.018 billion euros in the first half of the year, a year-on-year decrease of 11%, and its core brand Gucci's revenue fell by 20% year-on-year to only 4.1 billion euros.
Not only that, Burberry, which has not yet released its financial report, also recently issued a warning that it will incur an operating loss in the first half of this year and its full-year operating profit will be lower than guidance.
Opposite strategies
Faced with the same dilemma, different brands have adopted very different strategies. According to Bernstein data, Burberry and Yves Saint Laurent are trying to regain the market by cutting prices. Burberry has cut the price of its medium-sized Knight handbag by 22%. The price of the above-mentioned bag on the official website is currently 20,500 yuan. Yves Saint Laurent, a luxury brand under Kering Group, has also lowered the price of its best-selling Loulou handbag. The price of this handbag on the official Chinese website is currently 21,800 yuan, which is about 10% lower than the price in January this year.
According to data from Luxury Insights, the average price reduction of Versace and Burberry products across all distribution channels in China will reach approximately 50% in 2024, and even more in some cases.
On the other hand, brands such as Hermès and LV are still on the road of continuous price increases. Since 2019, Hermès has carried out several rounds of price adjustments. In 2022, the brand's price adjustment range reached about 4% for the first time, among which the Mini Kelly second-generation Box leather handbag and Kelly To Go handbag increased by more than 23% and 28% respectively. On January 1 this year, Hermès completed the price increase of its entire product line, among which the Mini Kelly generation increased by 10,000 yuan to 56,500 yuan, an increase of 21.5%, and the Birkin 30 handbag increased from 92,750 yuan to 105,000 yuan, breaking the 100,000 yuan mark.
LV just completed a new round of price increases at the beginning of this month, with the price of some popular handbags increasing by 6%. In recent years, LV has frequently raised product prices, with at least 10 price increases in the past three years. Chanel also raised prices again in March this year. The small CF handbag, one of the "Four King Kong" handbags, broke the 80,000 yuan mark, and the large CF price exceeded 90,000 yuan, approaching Hermès.
Chanel Chief Financial Officer Philippe Blondiaux once said that the price increase policy has driven sales growth of about 9% in fiscal 2023. The brand will continue to implement the policy of raising prices twice a year in the future, and may increase prices further in the second half of this year to adapt to rising material costs or balance exchange rate differences.
Intensified polarization
The 2024 Global Luxury Market Research shows that in terms of the performance of the global luxury market in the first quarter of 2024, most countries and regions have experienced a significant slowdown in growth. Claudia D'Arpizio, senior partner of Bain and main author of the report, said: "At present, many brands are experiencing a temporary crisis caused by macroeconomic pressures and polarization of customer groups. But this can also be a turning point for turning crisis into opportunity, through which brands can redefine the future direction and establish a more personalized connection with customers."
Zhang Peiying, an expert in the fashion field, pointed out that in the face of the slowdown in the growth of the luxury industry, the different strategies of brands are determined by their different customer groups. There is a clear gap between Hermès and Burberry, especially in terms of positioning. "For top luxury goods, their customer groups are not very sensitive to prices, and price increases can even better demonstrate the brand value. For brands such as Burberry and Yves Saint Laurent, they still need to stimulate sales through price regulation." Zhang Peiying believes.
Economist Pan Helin believes that opposite strategies are targeted at different operating situations. For example, as Hermès’ revenue in all regions grew by double digits, it would certainly prefer to choose a price increase strategy to increase profit margins, while Burberry’s performance was lower than guidance, so it would certainly prefer to lower the prices of poorly selling categories in order to exchange price for volume.
Zhou Ting, director of Yaoke Research Institute, believes that the luxury industry will develop in a polarized manner in the future. A few leading luxury brands will further develop into high-end brands, while many brands will become popular brands until they withdraw from the luxury brand camp. The number of luxury brands will gradually decrease. The difference between the two brand strategies also reveals two different directions of brand development, and of course, it also reflects the different future expectations of the brand owners for the two brands.
She further pointed out that if luxury brands want to achieve better development in the future, they need to continue to adhere to the high-end strategy. Consumption is looking up and forward. "We must also pay attention to services, upgrade product operations to customer operations, and build a new business model with people as the center." Zhou Ting pointed out.
