The Covid pandemic has taken a large share of the still booming luxury market. The personal luxury goods market, which includes fashion, jewelry, watches and beauty, will fall 23% this year to $ 257.5 billion, the largest annual decline in history and the first drop in prices. sales since 2009, according to the Bain 2020 Fall Luxury report.
The luxury market will not reach 2019 levels until 2022 or 2023, but 2021 is still in question as the second wave of Covid threatens the recovery that began in the second half of this year. Currently, Bain forecasts 10% to 19% growth in 2021.
In addition to months of store closures, the luxury market suffered from early travel bans, followed by the reluctance of luxury consumers to travel abroad. Europe suffered the most, dropping 36% this year, with sales in the Americas down 27%.
These two regions mourn the loss of wealthy and spendthrift Chinese tourists, who before Covid made up to two-thirds of their purchases in tourist hot spots, such as Paris, London, Rome, New York and Los Angeles. This year, around 80% of all luxury spending will be made locally.
But while Chinese consumers’ access to luxury goods has been reduced, their appetite has not diminished. Their spending has stayed at home and, as a result, China will be the only regional market to show growth this year, up 45% at current exchange rates.
However, China remains the third largest luxury goods market with $ 52 billion in sales, behind the Americas with $ 74 billion and Europe with $ 68 billion. But that could change by 2025, when Bain predicts Chinese consumers will account for half of all spending on luxury goods.
If Chinese consumers don’t get back to globetrotting and continue spending more money at home, Bain expects China to overtake the Americas as the world’s largest luxury market by 2025. That can cause problems for American luxury brands that simply don’t. have the cache of their European counterparts.
Chinese people lose interest
During the fashion month of October in China, Shanghai-based KOL (Key Opinion Leader) management and analysis firm Parklu did not report any US brands in the top 20 collections, while Prada, Chanel, Dior, Valentino and Burberry topped the list. .
Additionally, an AlixPartners survey of more than 2,000 Chinese consumers found that more than half (57%) planned to spend less on American products on this year’s Single’s Day (November 11), a shopping holiday that eclipses. now Black Friday and Cyber Monday in e-commerce sales. They further reported a preference for Chinese brands due to increased national loyalty.
The incredible sophistication and education of Chinese luxury consumers, as well as their youth – 25 to 30 years old is the place for luxury brands – entrepreneurship and national pride drive Daniel Langer, Ph.D. ., CEO of Equity, Professor of Luxury Strategy at Pepperdine Graziadio Business School and Daily jing contributor, to say: “In ten years, at least one of the ten biggest luxury brands in the world will be Chinese.”
It could hurt Tiffany & Co.
The American way of doing business does not suit the Chinese. While not all European luxury brands are doing it right, Langer believes they have a better handle on the issue.
“The American way is more short-term and more transactional, while the European way of doing business is more branding and long-term building,” he says.
Tiffany fell victim to it. “Tiffany as a luxury brand has lost its true north,” Langer believes, “It has ventured into too many areas that are not essential, such as cheaper entry level items and accessories. And they fail in creating experience. Go to a store, and it’s not very personal and almost a little pushy.
“In terms of experience creation, American brands are more transactional and not very relational,” he says.
Another failure of American brands, and reflecting their short-term orientation, is their heavy reliance on promotions. Americans are quick to offer discounts to preserve their income, which they have done at an even faster rate due to the pandemic.
“If you want to be absolutely certain that you destroy your brand, then start promoting,” Langer exclaims sarcastically.
“But if you look at brands that are really well run, like Chanel, they’ve done the opposite. During the pandemic, they partially raised prices. I can’t think of a single American brand that could have raised prices, ”he continues.
The short-term focus of American brands is eroding brand equity, if they even had it in the first place.
“American brands have traditionally been very weak in brand storytelling. They work from a manual of brand awareness building, instead of building capital, ”he says, adding,“ You can easily build brand awareness, do something crazy, or spend a lot of money, like a Super Bowl commercial. It’s very interesting, but it does not reinforce the value of the brand. “
Brand equity is based on storytelling that focuses on what the customer wants to know and what they value. American brands like to talk about themselves, but fail miserably at telling customers why they should care about the brand.
“Chinese customers are incredibly savvy when it comes to brand value; they want to know what is behind the brand, ”explains Langer.
“I would say Chinese customers are the most luxury savvy customers in the world. That means you can’t fool them and that’s the mistake American luxury brands make, asking customers to pay high prices for something of little intrinsic value, ”he continues.
Desire makes money
Effective brand storytelling creates the desire that is the foundation of the luxury industry and what will make a brand’s success in China for years to come.
“Chinese consumers want to know everything about brands, every detail, what the brand represents, how it is created. This is the reason why they choose the brand. They want it to be authentic, ”Langer says and this is perhaps the biggest failure of American luxury brands. They just don’t sound loyal to Chinese consumers.
Watch out for the gap
Rather than being blinded by the growing influence of Chinese consumers, American brands must work quickly to close these gaps.
Langer points to the Diane Von Furstenberg collapse as a warning of what could happen to American luxury brands that fail to adapt to the emerging power and influence of Chinese consumers.
“What I regularly observe is that brands do not sufficiently deepen their internal gap assessment and often do not take comprehensive and decisive action – problems persist, brand value is eroded and with the time, the brand loses its ability to influence and motivate consumers, ”he concludes.