The fate of the luxury industry

In a recent issue of the Economist appeared the material devoted to seemingly irrelevant the topic of fashion and luxury. However, British experts demonstrate how of the industry indicators clearly signal the state of the world economy as a whole and serve, paradoxically, lighthouses in forecasting economic prospects of whole countries and regions.


Experts state that the European manufacturers have a leading position in the industry of the fashion industry. They account for 70% of production, and the market size of 250 billion euros. However, as noticed by British observers, the industry saw the obvious problem that has not bypassed neither the giants nor the medium, nor small participants of the market of fashion and luxury. Of the company, regardless of size and influence in the world, and enter a challenging new phase of development.

The authors of the article quoted Branchini Armando (Armando Branchini) of the European Association of luxury brands (European luxury brands) in Milan, says the company, for example, such giants, the subjugation of the fashion industry and luxury, among which the largest French conglomerate “LVMH” Paris “Kering” and “Hermes”, and the other, yesterday incredibly flourished. These giants literally broke and completely covered new markets without much difficulty: at first it was Japanese, then American, and finally, the giant Chinese. Jean-Christophe Babin (Jean-Christophe Babin), “Bulgari”, confirms that the greatest growth in this area has led to a proliferation of luxury shopping centers in Asia. The time has come when Chinese consumers aspired to high-status things, which stimulated such an unprecedented distribution of luxury. Expert “Boston consulting group” (BCG — The Boston Consulting Group), Olivier Abtan (Olivier Abtan) characterizes affluent Chinese consumers, as “absolutely subdued” to demonstrate its state. The best advertising of the luxury industry was not the last hundreds of years.

At the time, to achieve rapid expansion of even the most successful brand and it does not lose its exclusivity, it was incredibly difficult, or nearly impossible. However, to solve this problem the business has helped the new strategy, which was based, including the concepts of conspicuous consumption developed by the American economist Oblena (Torsten Bunde Veblen). The essence of the so-called “Veblen Effect” (Veblen good) is that the higher the value of the goods, the greater the level of demand for them. Known manufacturers of luxury goods have a chance to offer their products at incredibly high price. The decision was correct, and as a result, the demand for luxury goods exploded.

Today, however, the expert says world solidarity: the Chinese boom is complete. The Economist article says: “Over the last four years of the authoritarian Chinese leader XI Jinping (Xi Jinping) took harsh measures against its political opponents, suspected of corruption, thus discouraging their desire to exhibit wealth and weaned Chinese tourists shopping abroad, raising the customs fees for those returning to the country with armfuls of bags from Hermes and Chanel”.

Both experts and major players in the global luxury industry is not without reason fear that it could turn into a steady trend. The company already alarmed by the changing tastes of Chinese consumers, who began to avoid recognizable logos and brands. Moreover, and by analogy with Western customers, Chinese will not hesitate to combine cheap fashion items (fast-fashion), with a few luxury clothing items. And although some experts have recorded a surge in demand for fashion brands in China in the last six months, yet according to sure according to analysts, the huge Chinese luxury market has reduced significantly and is experiencing qualitative changes.

Experts note that sustainable economic growth in America over the last few years has helped the luxury industry to maintain the level of sales. However, today, no one expects a return to success in the luxury market and fashion of yesteryear. Terrorist attacks in Europe, the slowdown of air travel and reduce costs at airports in the region also affect sales of luxury goods. A particularly strong impact was in the clock business. The head of one of the famous Italian fashion brand in Milan warns of glut in the markets. “To open new stores in China is impractical when you already have 200 retail stores engaged in the sale of all conceivable luxuries,” he says. It is estimated that in 2017 will not be too different from 2016 and will be the same sluggish.

According to estimates governing the leading fashion houses today the main task, unlike the previous decade, is not to conduct another expansion and to open new stores lux, and even to increase sales in existing outlets.

Which company is best able to cope with the slowdown: giants, smaller players or medium-sized companies? The advantages of conglomerate in the luxury sector are that such companies have the necessary tools to get the best places and lower rents in large shopping centers. Companies that produce luxury goods, of course, have the potential to enhance the marketing and pressure to expand the “back-office” services. And all this is very expensive, can not afford small and medium-sized companies operating in niche luxury fashion industry.

British experts believe that one of the new independent arguments for such celebrated companies in history, like “Hermes” or “Prada” in addition to benefit to be part of large groups, is the need to work in the digital sphere. It turned out that the companies engaged in the sale of luxury goods, not hurry to use sophisticated digital approaches as long as things went smoothly. Only 8% of the total sales of luxury goods happen online, while the rest of retail, the figure is 16% (with the exception of such goods as gasoline and food). But now the industry is forced to fit into the new situation, companies have to rethink their strategy.

The former head of “Salvatore Ferragamo” — the manufacturer of Italian shoes, Michelle Nourse (Michele Norsa) observed that the main users of online services of these companies are young consumers, who account for a significant share of buyers of luxury goods. Appeared sites online sale of used things; fashionable dresses you can rent for a few nights via websites, such as “Rent the Runway”. Large companies are considering how to profit from such services, which are usually unavailable to small firms.

Their estimates give, and lawyers directly involved in major transactions for the sale of luxury goods. New situation, in their opinion, will force more consolidation. And this process dictates not only the slowdown in the fashion industry.

New realities in the fashion industry are directly connected with the fact that in the world of online services of the company are working on technologies that allow to obtain detailed information about the most attractive customers, because it is wasteful buyers, which, of course, a minority of the total number of shape mood, meaning and, ultimately, the market itself.

For anybody not a secret that to this day even within its groups brands jealously guarded from each other information about major customers. Now the situation has changed, work has become all much more complicated, and conglomerates with difficulty, but begin to share this valuable information. So, in may “LVMH” plans to launch a common digital platform for all their brands, which can bring a new kind of data. It will compete with such websites, specializing in selling luxury goods as “Net-a-Porter”, as well as to promote the idea of shopping “Omni-channel” (combination of purchases made in-store and online). Created ten years ago, the company didn’t even allow the thought that the digital platform is compatible with luxury goods, says Jose Neves (Jose Neves), the founder of “Farfetch” — an online store of luxury goods. But the time has come when it is understood the vital necessity of their own presence on the Internet.

Mr. Abtan of “Boston consulting group” I believe that large companies probably need to “condescend” to digital technologies, to invest in this area and to have experience to transfer a trade from websites to shops. Firms of medium size such as, for example, the Italian “Zegna” are obliged to acquire these skills and be able to afford to stay at the achieved a respected level. But the smaller players, experts say, may have to deal with all these innovations.

According to British analysts, the task of tomorrow for companies, participants of the luxury industry will be tightening control over its supply. And one of the most important directions of the new strategy of the giant companies is the colonization of chic shopping centres, which, in fact has been opened under the economic boom. This, more recently, absolutely confident in his unlimited achievements and capabilities of major players in the fashion industry and luxury, will have to be reconstructed and all efforts and great tools in the study of consumers and their digital preferences.