“Ten years from now, at least one of the top ten luxury brands in the world will be Chinese,” says Daniel Langer, Équité
American Brands Are Losing Appeal in China, Just as It Becomes the World’s Largest Luxury Market
|
|
The Covid pandemic took a big bite out of the reliably buoyant luxury market. The personal luxury goods market, which includes fashion, jewelry, watches and beauty, will drop 23% this year to $257.5 billion, the largest annual decline in history and the first time sales have dropped since 2009, according to Bain’s 2020 Fall Luxury report.
The luxury market won’t reach 2019 levels until 2022 or 2023, but 2021 is still in question since the second wave of Covid is threatening the recovery that started in the second half of this year. Currently, Bain is predicting 10% to 19% growth in 2021.
Besides months of store closures, the luxury market has suffered from the travel bans put in place early, followed by luxury consumers’ reluctance to travel abroad. Europe suffered the biggest hit, dropping 36% this year, with sales in The Americas down 27%.
These two regions are mourning the loss of affluent, high-spending Chinese tourists, who before Covid made as much as two-thirds of their purchases in tourist hot spots, like Paris, London, Rome, New York, and Los Angeles. This year some 80% of all luxury spending will be made locally.
But while Chinese consumers’ access to luxury goods was reduced, their appetites remained undiminished. Their spending stayed home, and as a result, China will be the only regional market that posts growth this year, up 45% at current exchange rates.
Nonetheless, China remains the third-largest market for luxury goods with $52 billion in sales, behind The Americas with $74 billion and Europe with $68 billion. But that may change by 2025, when Bain predicts Chinese consumers will account for fully half of all luxury goods spending.
If the Chinese consumers don’t resume their globetrotting and continue to spend more of their money at home, Bain expects China to overtake The Americas as the world’s largest luxury market by 2025.
This may mean trouble for American luxury brands that simply don’t have the cache of their European counterparts.
|
|
“Our theory is if we really take care of customers, help them create a beautiful home and serve them extremely well, they are going to do our marketing for us. That was how this business grew,” says Gene Wilson, Room & Board.
Room & Board, Long Under The Radar, Looks To Scale In A Furniture Market Dominated By RH
|
|
Forty-odd years ago, two budding entrepreneurs – Stephen Gordon in Corte Madera, California, and John Gabbert in Minneapolis – found white space in the home market and set out to fill it. Starting from scratch, though Gabbert had a leg up from experience working in his parents’ furniture store, both men and their companies – Restoration Hardware and Room & Board, respectively – followed dramatically different paths.
Gordon took the high road, taking his company public for the first time in 1998 with 47 stores. Some good and bad years followed, with Gordon exiting the company in 2005 and leaving it in the very capable and wildly ambitious hands of Gary Friedman.
Today RH is a $2.6 billion company with 68 RH Galleries, including 22 mammoth-sized flagship Design Galleries. Venture to say, everyone has heard of Restoration Hardware, if not its new name, RH.
The same can’t be said for Room & Board. It’s big as privately-held furniture retailers go, ranking No. 25 in Furniture Today’s Top 100 U.S. Furniture Stores based on its $450+ million sales volume. But based on the number of stores – only 17 in 2019 – it is the second smallest among Furniture Today’s top 25.
By comparison, RH holds the No. 6 slot in that list, behind only Rooms To Go, Mattress Firm, Williams-Sonoma (where Friedman used to work), Ikea and Ashley HomeStore. However, it is the fastest growing (10.6%) among those top retailers.
For 40 years, Room & Board has grown largely under the radar, selling only modern and contemporary-styled furnishings with 90% crafted in America using natural, sustainable materials – it was a founding member of the Sustainable Furnishings Council. Now it is stepping out of the shadows and getting the attention it deserves.
|
|
The AP reports that layoffs and pay cuts are starting to impact white-collar professionals. These people overwhelmingly make up the HENRY demographic.
What Comes Next for the Luxury Market?
|
In a blink of the eye, consumer spending shifted from discretionary to necessity purchases and has remained that way throughout the months of the shutdowns. With luxury being the most discretionary of all consumer purchases, it was the first consumer segment to suffer cutbacks due to the coronavirus and is shaping up to be the last one that will recover.
The luxury market drives on the psychology of affluent consumers. When they feel good about themselves and on solid ground financially, they give themselves permission to indulge. When they don’t, they won’t. It’s that simple.
Right now, nobody feels confident or assured that they or their loved ones will get through this unscathed and depending on where they fall on the income/wealth spectrum, their financial status may be in question, too. How long these feelings of uncertainty will last is the $64,000 question.
Looking across the luxury consumer market, luxury brands can count on their rich customers to come back, maybe not with the same enthusiasm short term, but return they will.
That will not be the case for the mass-affluent HENRYs who occupy the space between the middle-income consumers ($50,000-$99,000) and the ultra-affluent elites ($250,000+).
Unity Marketing has prepared ans easy-to-read 35+ page report that explores what the new-normal, post-coronavirus world will look like from the perspective of the HENRYs and ways that luxury brands can connect with them.
The luxury market is going to be profoundly changed by profound changes to the HENRYs mindset, priorities, and values.
|
|
|
|
|
|
|
