lv's sudden withdrawal from shenyang, is this the first step in the cold winter of the luxury goods market?
2024-09-05
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doauthor | lao dao
in recent years, luxury brands that were once extremely prosperous in the chinese market are now facing unprecedented difficulties, with top luxury brands such as louis vuitton frequently reporting store closures and declining performance.
as consumers become more rational, the position of luxury goods in high-end shopping malls is no longer unbreakable and the appeal of luxury brands is weakening.
luxury brands, which high-end shopping malls rely on for their survival, are losing their former glory. faced with the continued weakness of demand in the chinese market, this phenomenon may trigger a chain reaction in the luxury goods industry.
it is not common for luxury goods to close stores in china. the general situation in the industry is that high-end shopping malls treat international luxury goods as "guests of honor". they can get the best location on the first floor, the strongest bargaining chips for entry, the most favorable leasing policies, and even the greatest autonomy in daily operations - such as not participating in mall activities, not following the mall's unified operating requirements, etc.the reason why high-end shopping malls are high-end is that these luxury brands support the facade. the closure of any luxury store is an earthquake-level event, especially for high-end luxury brands.since last year, the demand for high-end consumer goods seems to have weakened, and the growth rate of luxury goods has slowed down or even declined. especially under the macro background of consumption downgrade and the rise of fast-paced internet consumption, luxury goods are becoming increasingly "demystified".it is reported that shenyang zhuozhan group is a large chain department store group that operates and manages high-end brands and provides high-quality goods. it is a well-known high-end department store operator in northeast china. the group was established in the 1990s. in 2012, it was renamed "zhuozhan group holdings co., ltd.". it has currently opened zhuozhan shopping centers in shenyang, changchun and harbin, with a total property area of nearly 650,000 square meters.since the beginning of this year, lv has been hit by a series of bad news.recently, there were media reports that sephora china announced that it would lay off 3% of its employees in the mainland market, about 120 people. sephora is a beauty and cosmetics store brand under the lvmh group. it is the second largest brand in the group after louis vuitton.according to lvmh group's second quarter and first half financial reports this year, the select retail division where sephora is located saw revenue increase by 3% to 8.632 billion euros in the first half of the year, and organic growth of 5% to 4.5 billion euros in the second quarter, which was lower than analysts' expectations.in addition, dfs group, a luxury travel retailer under the lvmh group, also announced a 5% layoff in the macau market.in addition to layoffs, at the recent paris olympics in france, lv invested 150 million euros (about 1.2 billion yuan) to make a strong appearance, which was also interpreted as having to spend heavily on marketing due to "poor performance."louis vuitton is responsible for creating the medal boxes, torch boxes and award trays for the olympics. its dior brand sponsored the costumes for the opening ceremony performers, and chaumet was responsible for designing the official medals.although the olympics were held in france, it is unprecedented for a luxury brand to sponsor a sports event in this way. as a high-end luxury brand, lv's choice to sponsor a mass sports event like the olympics does not match its traditional target audience and its brand image.luxury goods companies collectively saw a decline in performance
luxury consumers are necessarily those at the top of the social pyramid, who have sufficient disposable income and have even achieved financial freedom. china has always been an important engine for the growth of global luxury consumption.a report from the wall street journal shows that lvmh group is headquartered in paris. obviously, europe is its "home", but the engine of lvmh's amazing growth in the past 30 years has come from the chinese market. the chinese are obsessed with this brand and even imitate it more than people in any other part of the world. sales in china account for about 20% of lvmh group's global sales.but in recent years, lv is no longer so popular in china. on the one hand, it may be due to the change in consumption concepts of china's wealthy class, and on the other hand, it may be that the imitations everywhere and the popularization of lv to the public have potentially made the lv brand be labeled as "nouveau riche".especially after the epidemic, the downturn in the entire consumer ecosystem inevitably affected luxury brands such as lv. marketing experts believe that the main consumer groups began to consume rationally after their assets shrank, and their desire for luxury goods with large premium space decreased. in addition, due to the influence of exchange rates and tariffs, some savvy chinese people also began to choose to purchase luxury goods abroad or go abroad.especially in the first half of this year, luxury goods' performance in the chinese market has declined, and even their global business has been affected.on july 23, lv's parent company lvmh group released its performance report for the first half of 2024. the group's sales revenue fell 1% year-on-year to 41.7 billion euros, and net profit fell 14% to 7.3 billion euros; sales revenue in the asian market (excluding japan), led by china, fell 10% year-on-year.bernard arnault, chairman of lvmh group, saw his wealth fall from a peak of $231 billion at the end of march to $185 billion at the end of july, a drop of about 20% in just four months.in addition to the difficult times for the lvmh group, a number of other well-known luxury brands have also entered a cold winter.on july 15, burberry released its first quarter report for fiscal year 2025. in the three months ending june 29, the company's retail sales fell 22% year-on-year to 458 million pounds, and same-store sales fell 21%, with sales in china shrinking by 21%.on july 16, cartier's parent company richemont group released its new quarterly financial report. calculated at a fixed exchange rate, the group's sales increased by 1% to 5.3 billion euros in the three months ending june 30, 2024, compared with a 19% increase in the same period last year. by region, sales in the asia-pacific region fell by 18%, with sales in greater china plummeting by 27%.on july 24, gucci's parent company kering group released its financial report for the first half of 2024. as of june 30, 2024, the group's revenue in the first half of the year was 9.018 billion euros, a year-on-year decrease of 11%; net profit was 878 million euros, a year-on-year decrease of 51%.due to the sluggish demand in the asia-pacific region, especially in china, kering group's net profit was halved in the first half of the year, and revenue is expected to continue to decline in the second half of the year. in the first half of the year, the asia-pacific region's revenue was 2.897 billion euros, a year-on-year decrease of 22%; japan's revenue was 737 million euros, a year-on-year increase of 8%.hermès' growth rate in the asia-pacific market, including china, in the first half of 2024 was only 5.5%, a significant slowdown from 14% in the first quarter. its market share dropped from 49% to 47%. hermès has clearly pointed out that the chinese market is showing signs of weakness.swatch, a swiss fashion watch manufacturer in the luxury goods industry, also saw its net profit fall by 70% in the first half of the year. in its financial report, it mentioned that the decline in demand for luxury goods in the chinese market had affected its performance.looking at the luxury giants that have announced their performance so far, almost all of them mentioned that china's demand for high-end consumption is weak.high-end shopping malls also start a "price war"
luxury goods are the "king bomb" in the hands of high-end shopping malls, shouldering the important task of improving brand grade, attracting traffic, and increasing transaction volume. if the consumption demand for luxury goods decreases, the power of these "king bombs" will be greatly reduced.in august this year, a "melee" in three high-end shopping malls in wuhan attracted great attention in the industry.wushang mall, wuhan skp and wuhan hang lung plaza, three high-end shopping malls, launched a price war among high-end shopping malls by means of subsidies. since the subsidy recipients include luxury brands such as lv, and some brands did not participate in shopping mall activities before, this is also seen as the first price reduction of top luxury brands in the chinese market.as we all know, luxury goods never offer discounts in order to maintain their brand image, which has almost become their lifeline. however, in the melee of the three shopping malls in wuhan, "although it is not a direct discount by the brand, consumers can redeem shopping mall gift coupons with shopping receipts and other vouchers after purchasing at full price, which greatly stimulates consumers' enthusiasm for buying."in other words, the shopping malls paid out of their own pockets for the subsidies, which is no wonder why consumers are crazy about it. however, for luxury goods, this "damages the brand image" so they choose to confront the shopping malls, and finally even caused lv to stop the event.shopping malls are engaging in price wars at their own expense, and even "pulling down" luxury goods without any regard for the consequences, proving that high-end shopping malls are having a hard time. in the same city, there are a large number of high-end shopping centers, which has led to market "involution". coupled with the sluggish consumption environment, the predicament of high-end shopping centers is becoming increasingly obvious.
the withdrawal of lv from shenyang zhuozhan shopping center may be the first domino that will cause more high-end shopping malls to fail in the future, and may even trigger a series of chain reactions. in fact, judging from the performance in the first half of the year, high-end shopping malls are indeed facing performance pressure.data released by the national bureau of statistics showed that the total retail sales of department stores in the total retail sales of consumer goods in the first half of 2024 decreased by 3% year-on-year, and the overall industry showed a downward trend.the 2024 half-year report released by hang lung group showed that total revenue increased by 15% to hk$6.379 billion compared with the same period last year, while overall rental income fell by 7% to hk$5.151 billion. among them, overall rental income in the mainland fell by 4% and tenant sales fell by 13%.in terms of mainland retail properties, hang lung’s shopping mall portfolio revenue fell by 3% in the first half of 2024.this mainly reflects the weakness of luxury consumption. in the commercial real estate sector, the mainstream way of collecting rent from luxury brands is to charge a commission based on sales, which has led to a simultaneous decrease in shopping mall rental income.in the first half of the year, tenant sales of shanghai plaza 66 fell by 23% year-on-year, and the mall revenue also fell by 8%. in addition, shanghai grand gateway 66, with a rental rate of 97%, saw a 14% year-on-year decrease in tenant sales and a 4% decrease in mall revenue; shenyang city hall plaza 66, kunming plaza 66, wuhan plaza 66 and other high-end malls also saw a decline in revenue and tenant sales.however, it is worth noting that the decline in sales is more obvious in high-end shopping malls, while some mid-to-high-end or popular shopping malls have seen growth, such as shenyang imperial city hang lung plaza, jinan hang lung plaza, and tianjin hang lung plaza.in its semi-annual report, hang lung cited several reasons for the weakening of the mainland luxury goods consumption market, including: customers with lower purchasing power have become more cautious in their luxury consumption, and the increase in the number of tourists traveling abroad to buy luxury goods has led to a decline in the revenue of mainland shopping malls.according to swire properties' 2024 first-half financial report, swire properties' total revenue in the first half of the year was hk$7.279 billion, the same as the same period last year; rental income from retail properties was hk$3.682 billion, an increase of 4.9% over the same period last year.in terms of mainland retail properties, swire's overall retail sales of mainland shopping malls increased by 4% year-on-year in the first half of the year. however, looking at specific projects, high-end shopping malls still showed a major decline, while comprehensive shopping malls remained relatively stable.in terms of retail sales, among the six major shopping malls, only shanghai qiantan taikoo li remained the same, while beijing sanlitun taikoo li, chengdu taikoo li, guangzhou taikoo hui, beijing indigo, and shanghai xingye taikoo hui fell by 4%, 17%, 9%, 4%, and 20% year-on-year respectively. among them, the three high-end shopping malls chengdu taikoo li, guangzhou taikoo hui, and shanghai xingye taikoo hui suffered the largest declines.how can high-end shopping malls save themselves?
in the face of unfavorable macro conditions and the increasing "malfunction" of luxury goods, how can high-end shopping malls save themselves?first of all, we need to realize that consumers are becoming increasingly rational, and most importantly, we need to perceive the potential changes in the market and not blindly believe in luxury brands.as mentioned above, lv consumers are easily labeled as "nouveau riche". for the real wealthy class, they are more afraid of unnecessary public opinion storms caused by conspicuous consumption. therefore, for luxury goods, it is still the "middle class" who are obsessed with them, or even the "conspicuous consumption psychology" that exists among the general public.in terms of brand structure, on the one hand, it is necessary to maintain the image value of luxury goods to create the "brand tone" for the entire shopping mall. in fact, such facade value is not the more the better, because after all, the core appeal of the shopping mall is sales.on the other hand, more attention should be paid to high-quality brands that are more popular and have better shipments, so that the brand power in the middle can become the main force of shopping mall consumption and continue to expand the penetration of this part.in addition, it is especially necessary to adapt to the younger consumption trend. in terms of marketing and brand awareness building, it is necessary to lower the price with a younger and more active attitude and go to the "young crowd".in fact, many luxury brands have begun to actively "get close to the people". according to financial reports, lv first broadcast on xiaohongshu in march 2020, and prada also did its first live broadcast on tmall in the same month. many luxury brands have also started joint marketing, such as lv and manner coffee shop, fendi and heytea, which have brought high-end luxury brands into the daily lives of the public.the author believes that the hardware environment and high-end brand layout of high-end shopping malls have always been important factors in demonstrating their value and showing their status in the local business community, but these "hard" external manifestations do not necessarily make the brand itself warm and attractive.for today's emerging high-net-worth consumer groups, interesting marketing methods and brand building with artistic presentation capabilities that can resonate with the emerging world - such as the aforementioned joint ventures and interactive sharing, can ensure the vitality of high-end shopping malls and make high-end products reach the hearts of people rather than just become a formality.luxury consumption is generally declining around the world, and the decline in the chinese market may be more obvious because there have been many bubbles in the past few years. now that consumer desire and spending power are declining, a correction is normal.department stores and shopping malls must be prepared for future declines, understand brand owners' adjustment strategies in advance, and make corresponding changes. overall, the number of stores to be opened will definitely be reduced. even if stores are opened, the area will have to be reduced. merchandise must be adjusted, services added, and especially the stickiness of loyal customers must be increased.
