The reorganization of the luxury industry

Hard hit hard in the first quarter by drops in sales of 15% on average (Kering and LVMH, with Hermès escaping with only a decline of 6.5%), all luxury brands have their sights set on recovering in the second quarter. In that time China is expected to increase its share of the world luxury market, and signs point to that expectation being borne out. "In April, Dior and Louis Vuitton boutiques saw sales growth, some of them by more than 50%," announced Jean-Jacques Guiony, Chief Financial Officer of the LVMH group on Thursday April 16th. As for web channels, Jean-Marc Duplaix, Chief Financial Officer of luxury group Kering, says, "In China, online sales for the Kering group rose by 20% and Gucci’s rose by more than 100% in the first quarter."

Luxury Tribune spoke with Karine Szegedi, head of the Fashion and Luxury sector at Deloitte in Switzerland, who told us, “Online sales will not replace physical sales. On the other hand, branded jewelry and iconic accessories that have a value that lasts over time will do better in e-commerce.”

But what impact will the 60 days of closure and the gradual reopening of the stores have on customers’ appetite for consumption?

As the pandemic accelerated the digital shift, brands stepped up their online presence creatively. The ultimate best practice: a mix of live streaming, virtual shows and discussions with internet users. Commitment to customers and listening to their needs on a daily basis has become key.  The Shanghai Fashion Week (with more than 150 participating brands), held at the end of March, went 100% online. A bold move, but it far exceeded expectations thanks to the partnership with Tmall, billionaire Jack Ma's mega-platform, which turned this test run into a success. In just a few days, the fashion show recorded more than 11 million views and a 26% purchase conversion rate. Karine Szegedi, partner with Deloitte Switzerland, says that positive signs can also be observed for jewelry and accessories on the Tmall platform. "The Cartier brand, for example, has just launched a boutique there at the beginning of this year. Perfect timing in these pandemic times. And it's doing very well. But these sales generally concern brand icons. For Cartier, the Juste un clou capsule collections sold in record time, even in full lockdown." Arnaud Carrez, Marketing and Communication Director of Cartier International, explains: "The partnership we have put in place with Alibaba and Tmall Luxury Pavilion is a very interesting source of inspiration and learning. The results since we started in January have been remarkable, and it has allowed us to test new digital formats, considering that today China is a key market in terms of omnichannel strategy. We pre-launched the Santos Dumont limited editions on Tmall on April 15. It was the first time we launched a new watch on a digital platform before the physical launch in a brick-and-mortar store."

During the pandemic, the brands' online strategies have evolved fast. In this time many watch brands, including Omega, Hublot and Breitling, have announced the launch of e-commerce sites.

Ricardo Guadalupe, CEO of Hublot, told Luxury Tribune on April 21: "The support of online sales will become even more essential. In early June we are opening Hublot e-commerce sites in China, the United States, Japan and parts of Europe. I sped up their opening to launch our connected watch. The new collection will be launched online and from mid-June the basic collection will also be available online. Selling online is very complex because of the legal issues involved. We cannot forget that our business also relies on retailers and not only our own stores, so online watch sales have to target specific markets. According to my estimates, total e-commerce sales will equal the business of one or two physical stores. " 

Breitling can say the same. Georges Kern, head of the brand, explained in a digital press event that 70% of Breitling buyers find information online. “Eventually, e-commerce will increase to 10 or 15% of sales, but the physical experience will remain fundamental,” he says. “In China, in recent weeks, customer traffic has been 40% lower, but it is interesting to note that the conversion rate into actual purchases has risen from 10% to 40%. That’s why we need to reach out to our customers more proactively, so as to bring them into the store, set an appointment to meet them in person."

Here we see once again that the antidote to what is plaguing the luxury industry may be China, despite the danger of capitalizing on a single market. Davide Traxler, at the helm of the Parmigiani brand, confirms: "One of our largest corners (75 m2) will open by the end of the month in Shenhang, the next Wuhan. And we have four more openings in China planned for this year."

Agility and an all-out effort to consolidate customer contact are also the backbone of the Audemars Piguet strategy, as CEO François-Henry Bennahmias  told Luxury Tribune on April 9. “While in early March we saw only a slight 1% increase in sales, in April we are seeing a more marked impact. And even if going digital has helped us communicate during the pandemic, we want to value authenticity and put a priority on human relations, because that is what lies at the heart of Audemars Piguet. Online sales will only represent a small percentage of our business. As we were closing stores in March, we were putting tremendous effort into ensuring that watches were delivered to the customer's home in certain countries, in compliance with health measures. Our customer relationship will have to be completely redefined. A dinner for thirty will no longer be an option for a long time to come. But the unique, very privileged, face-to-face relationship, according to the highest standards, will become the new normal." As for knowing whether customers will still be driven by the same purchasing frenzy as before the Covid-19 crisis, François-Henry Bennahmias explains, “When the pandemic is over, it won’t be business as usual. There will be an after-Covid. I'm sure things will never be the same again. Quality and limiting waste will become even more of a priority for all. Everybody will feel the need to consume less. We have many working groups reflecting on these new, rising sensitivities and we need an action plan that responds to those needs."

While most watch manufacturers will open again on May 11, production will resume at 50% and will gradually increase depending on the reopening of stores. Can the underlying industrial fabric of small independent watchmakers withstand this new phase? François-Henry Bennahmias warns: "Collective government support is required to protect our industrial fabric. If real talent is allowed to die in Switzerland, this will be a serious threat to the Swiss watchmaking industry. We could be facing an acceleration of subcontracting abroad and a deterioration of the market for Swiss-made products. Even if watchmaking is losing ground in terms of volume, our craftsmen have to be preserved."