Complex Made Simple

Is luxury retail facing adversity on the way to prosperity in 2019?

Here are the elements slowing Luxury retail and the forces pushing its gilded wheels forward

We need to recognize the fact that at a certain point we’re going to slow down, we cannot keep on growing 50-60% per month,- Gucci You don’t want to shop at Louis Vuitton on the Champs Élysées when cars are burning on the street.- Mario Ortelli The McKinsey Global Fashion Index (MGFI) forecasts growth of 3.5 to 4.5% for 2019

In a recent report by Forbes, it was revealed that slower times are ahead for the luxury sector.

“The investment community dislikes any uncertainty and there is plenty of it to go around. A recent survey by J.P. Morgan among ultra-high-net-worth investors (those with more than $30 million in liquid financial assets) found that 75% expect a recession to hit the U.S. by 2020,” said Forbes.

Even Gucci CEO Marco Bizzarri said in a video to company employees: “We need to recognize the fact that at a certain point we’re going to slow down, we cannot keep on growing 50-60% per month, it’s impossible”.

This is despite the fact that the wealthy are getting wealthier.

Capgemini, in its World Wealth Report 2018, found global high-net-worth-individual wealth rose 10.6% in 2017 to surpass $70 trillion. 

Global HNWI wealth may top $100 trillion by 2025.

Credit Suisse, according to its calculation, said the number of millionaires reached 42.2 million worldwide in 2018.

“But where wealth used to be something the affluent wore proudly, today the wealthy are retreating into their cocoons,” said Forbes.

“As the rich get richer, everybody else has fallen behind. Income inequality is causing resentment to grow among the hoi polloi and anxiety to rise among the wealthy.”

Wealthy consumers will indeed favour privacy and security through 2019.

Read more: High-end retail Q&A: Data and analytics in understanding consumer behaviour in the luxury sector 

Case in Point: Paris pays the price

Following the Yellow vests riots that caused shops on Paris’ luxury thoroughfares to be boarded up, Mario Ortelli, managing partner of luxury advisors Ortelli & Co, told the Business of Fashion, “You don’t want to shop at Louis Vuitton on the Champs Élysées when cars are burning on the street. You don’t want to walk around with an Hermès bag when there’s a violent protest happening.”

The French Finance Minister Bruno Le Maire estimated Paris has experienced a sales decline between 20%-40% as a result of the protests.

“What is happening in France is but a bellwether of things to come worldwide as the wealthy grow more anxious and in response become less conspicuous, retreat from danger in the public square and act to secure their holdings,” says Forbes.

This will only make it harder for luxury brands to connect with them in the coming year.

According to Business of Fashion (BOF), many high-end brand names underperformed in 2018 as well.

“Tiffany, Ferragamo, Tod’s and Prada fell short of expectations in 2018 in 2018,” it said.

 Read more: Arab Luxury World Day 1 shows huge digital impact | ALW2019

Will luxury retail grow stronger in 2019 and beyond?

Luxury is expecting a strong 2019, according to BOF.

“With many 2018 results falling short of forecasts, brands are coupling optimism for the year ahead with new retail strategies, in an attempt to maintain growth trajectories,” it said. 

According to the Savigny Luxury Index (SLI) index, Ferragamo is already seeing growth in same-store sales, while Tiffany is focusing on growing its e-commerce business. Hermès’ results stood out with the luxury group’s operating profit crossing$2.2 billion mark in 2018 and Galeries Lafayette’s new flagship on the Champs-Elysées is turning the prevailing department store model on its head.

“Gone are the shops-in-shops; merchandising is now based around styles or trends, spanning gender and product categories. Customers can book an appointment with one of 300 “personal stylists” who will assist their journey through the store by using an app which allows for the uploading of preferences by the customer as well as the recording of their selections, photos of fittings and measurements,” BOF said.

Read more: Luxury retail can’t afford to miss out on Big Data | ALW2019

The (“SLI”) further solidified its gains in March as investors look forward to improving prospects for the sector in 2019.

SLI vs. MSCI

Meanwhile, a no-deal Brexit is estimated to cost the British luxury sector $8.9 billion according to a study commissioned by Walpole, the UK’s luxury industry lobby group.

Regardless of size and segment, players now need to be nimble, think digital-first and achieve ever-faster speed to market. The McKinsey Global Fashion Index (MGFI) forecasts growth of 3.5 to 4.5% for 2019.