Published
Dec 10, 2014
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Luxury: growth slows; competition gets tougher

Published
Dec 10, 2014

Facing a slowdown in growth and increased competition, the luxury sector will have to learn to adapt to a market that is constantly and rapidly evolving. In this context, larger groups in particular, such Kering and LVMH, will be in the best position to compete. That’s according to a report published by Standard & Poor's. 

As many other analysts have already shown, the luxury industry still has a bright future, provided that it plays its cards right. Growth will not be as strong as over the past decade, but it will continue, mainly driven by demand from emerging countries.

In an increasingly complex and competitive environment, brands must rely more on the online channel (Photo: prada.com)


"Currently, the luxury sector is suffering from stagnation in Europe and slowing demand in China. In Europe, the preferred destination of luxury customers, brands can take advantage of the weakness of the euro, which should help to increase the influx of tourism," said Barbara Castellano, one of the report's authors.

“China, meanwhile, remains a strategic market for growth in the long term, as demand for luxury goods is still very strong. Demand there should increase thanks to the growth of its middle class. It will be up to brands to adapt to a more affordable price range," said the analyst. 

Another positive factor is the recovery of Japan, which makes up 8-10% of total luxury sales, and which is becoming one of the favorite destinations of the Chinese. 

Given these conditions, luxury companies can attack on different fronts. First, according to Standard & Poor's estimates, they will need to open fewer directly owned stores. The Asian market in particular has already been somewhat saturated with openings in recent years. 

New stores should instead be opened in airports to take advantage of the influx of tourists. It is the knowledge and anticipation of these influxes that will allow brands to scores points over the competition.

A Salvatore Ferragamo store


Online, another important channel, will play an increasingly decisive role for both sales and brand image.

“Long-term success will depend on the ability of luxury companies to adapt to emerging trends in online retail. Key factors for companies also reside in their ability to protect and enhance their brands, while diversifying their supply and markets to protect against shocks linked to products and regions.”

Who will win the battle? Mainly large groups that have acquired several brands and which have greater financial capacities, such as Kering, LVMH and Richemont. This trend will increase the polarization between large groups and small brands. 

“Nevertheless, the success of several independent actors, including Prada, Ferragamo, Armani, Dolce & Gabbana, Max Mara, Trussardi, Tod's and Zegna, to name only a few, shows that well-managed independent companies which make excellent products are well positioned to continue to succeed and to grow," concludes Castellano.

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