Luxury goods under the pandemic: online sales are booming, and brands are keen on increasing prices
“Towards the end of April, SECOO sold two Hermes Himalayan bags in less than 10 days. Each item sold exceeded RMB 600,000, with the most expensive purchase made for RMB 650,000. It took less than 10 minutes from making an enquiry to the final purchases during the livestreaming session.” This example was introduced to YICAI by SECOO, a global luxury shopping service platform, epitomizes the post-pandemic reverse growth taking place in luxury e-commerce platforms.
Online sales have improved significantly
Bain, together with Fondazione Altagamma, the Italian luxury goods industry association have released their “2020 Global Luxury Industry Research Report Spring Edition”. The report highlights how China is leading the economic recovery after the pandemic. It is expected that by 2025, Chinese consumers’ will contribute towards 50% of the world’s total luxury consumption, becoming the key engine in the rebound growth of the luxury industry. In addition, the share of online channels will further increase, with expectations for it to rise to 30% by 2025.
“After the outbreak, online sales of SECOO have increased.” Since the outbreak, there has been a significant increase in the acquisition of live data by SECOO, as reported to YICAI. This has been attributed to the shortening of the distance between brand and consumers. Due to the limitations in the offline shopping experience, there is an opportunity to reshape consumers’ purchasing habits of luxury online.
SECOO also revealed that there are active users throughout the 24 hours in a day, with the average spend per customer having increased significantly due to the pandemic. An example of this would be the significant increase in the number of SECOO users that brought Hermes, purchasing items that range from RMB 100,000 – 300,000. These users who purchase scarce Hermes products are clearly quite, astute and ruthlessly decisive in their purchase decisions.
How are online channels seizing opportunities?
贝恩公司的报告指出，即便受到仓库关闭等影响，但总体而言，个人奢侈品的线上销售预计在未来几周或几个月仍将保持正增长。RTG Consulting Group创始人兼首席执行官Angelito Tan告诉第一财经，在过去，数字化可能并不是奢侈品牌的首要任务。但如今，疫情凸显了数字化作为未来战略的必要性。虽然这不一定会成为主流，但过去的几个月市场表现证明，奢侈品牌愿意更多地尝试线上渠道营销，未来，线上销售的比重将会加大。
Despite recent warehouse closures and other disruptions, overall online sales of personal luxury goods are expected to remain positive in the coming weeks and months ahead, according to the report by Bain. Angelito Tan, a Founding Partner and Chief Executive Officer of RTG Consulting Group, told YICAI that whereas digitalization of luxury brands may not have been a number one priority in the past, the pandemic has highlighted the need for digitalization as a strategy for the future. Although it will not become the mainstream, the past few months have shown that luxury brands are willing to experiment more with digital and it has become a proof-point for them to accelerate the digitalization of their brands.
Founding Partner and CEO of RTG Consulting Group
RTG Consulting Group创始人兼首席执行官
Judy Liu, Farfetch’s general manager in greater China, pointed out that with the transition from offline to online, consumers will become more at ease with the consumption of luxury goods online. For example, with the reduction of tariffs and price adjustment by brands, as well as consumers’ attention to services, those who travel and shop in Europe and the United States will transfer back to the mainland market.
In terms of how to enhance the influence of luxury brands e-commerce, Judy Liu believes that what online retailers need to do is first localize their customers experience, focus on the attributes of local customers and seize their uniqueness to build next-level services. The second is the ability to apply technology and data, to invest in the necessary technology to capture and utilize data effectively. The third point is to localize content and brand influence. The characteristics of the luxury industry make it impossible for us to ignore the role of content and brand within it. How to build the brands influence on the platform remains as a core mission of Farfetch.
Raising Prices, Raising Prices!
However, major luxury brands themselves are not as prosperous when compared with e-commerce.
Bain’s report shows a 25 percent drop in sales for global personal luxury market within the first quarter of 2020, with an accelerated shrinkage expected for the second quarter, and the overall market expected to shrink by 20 to 35 percent for the full year – depending on the pace of the post- pandemic recovery. Considering that LVMH’s revenue fell by 15% in the first quarter and year-on-year to 10.6 billion euros, the pressure on luxury brands to raise prices will not only guarantee the brand value, but also recover some of its sales-performance under these special circumstances.
On May 13, the French luxury brand Chanel officially stated it would raise prices for its handbags and selected small leather goods due to the rising cost of raw materials in the coronavirus pandemic. At present, Chanel classic collections prices have risen across the board by up to 25%. Louis Vuitton is also amongst this group, having risen the price of its Chinese counter for the second time on May 5, making it the third price hike in less than six months – the first being in March and the second in September.
For the behavior of luxury brands to raise their price collectively, Angelito Tan had this to say: “As we are well aware, the Chinese luxury consumer grows at a rapid pace annually. Leading brands have in the past increased the prices of their products year on year already. As part of a broader strategy, and independent from the pandemic, price increases reassure the status of luxury brands by reinforcing exclusivity of their products. Although the pandemic may have temporarily stunted sales, brands are trying to quickly get back to business as usual. “
Amid the pandemic, the performance of luxury brands has become more polarized, with Angelito Tan pointing out that, broadly speaking, brands adept at connecting with the new generation of Chinese consumer were already growing at a faster pace compared to their rivals.
“With the pandemic, what we see is an acceleration and magnification of the gap between brands that excelled and brands that stagnated. On top of this, because these more successful brands were already connecting with the rising consumer that they understood best, these brands were better at keeping the communications even during the crisis.” He told YICAI.
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