“Over-extending the retailer network is indeed a problem,” says Luca Solca, managing director, luxury goods at Exane BNP Paribas said in his speech at the recent edition of deLux16 conference in Sydney, Australia. “And I don’t think this is just a cyclical issue, but rather a structural issue. The fact is, middle class consumers only have so much to spend on luxury goods and their wardrobes are full. The Chinese are still driving growth, but they are driving it as a far more moderate pace.”
“The companies that have increased their retail network the most, namely Prada and the Swatch Group (Omega, Harry Winston, Breguet, Balmain, etc) in soft luxury and in hard luxury respectively, are the ones that have suffered the most, especially when it comes to share price performance.”
Luca Solca believes luxury brands will need to rely more and more on online sales to survive and grow. “Online sales are a way to increase frequency of purchases,” he says. “There are lower operating costs involved because you don’t have property rental, or commissions to pay to sales staff. Therefore, the return investor capital equation looks good.”
Digital also enables luxury goods companies to know virtually all of their customers by name and to tailor their communication to them and their desires.
Aside from the revolution in selling luxury brands online, Solca says luxury goods companies are going to have to start culling their underperformers. “This is probably a good time to reassess their ‘dark brands’; I believe this is why LVMH divested themselves of DKNY, a brand that had lost money for the best part of a decade.
“Consumers in the current environment are spoiled for choice. They are becoming very choosy, they are becoming more experienced, and they are not going to tolerate imperfect or disappointing products or services. Luxury goods companies need to get buttoned up and work on product innovation, work on brand availability, and of course also work on service provision.”
Luca Solca was a speaker at the recent deLux16 conference in Sydney, Australia.
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