Luxury leaders go local as pandemic continues to halt travel
The capitals of Europe have long been destinations for foreign tourists, most notably Chinese and Arabic visitors, to fill their shiny Rimowa suitcases to bursting with luxury goods. Buying a new Hermès bag on the Rue du Faubourg Saint-Honoré or a bespoke suit on Savile Row felt more authentic and could seduce many an international visitor to spend, spend, spend.
International travel and shopping have always been happy companions. One relied on the other, but, travel has all but stopped, and the millions who once flocked to Selfridges in London or Galeries Layfette in Paris are no longer arriving. This is prompting luxury houses to pivot and focus local.
In its recent results, the world’s largest luxury group, LVMH, said there was a 28% decline in LVMH’s revenue for the full-year in Europe. It said while the Chinese domestic market saw strong growth it wasn’t enough to make up for the missed sales from their trips abroad.
LVMH’s chief financial officer, Jean-Jacques Guiony, said he hoped the group could grow its local European market to fill the void left by the tourists.
“Growing our local sales by one-third isn’t achievable in a year, or maybe even two, but we believe it’s achievable in a significant way,” he said. “We see no reason we should be shutting down stores, even in Europe where the recovery is less obvious for the moment.”
Traditionally, in the final quarter of the year (Q4) the majority of European luxury sales (50-60%) usually comes from tourism. In its Q4 results LVMH bullishly said, while Europe is still affected by the crisis, the United States saw a good recovery and Asia grew strongly.
In London, Brian Bickell, the chief executive of West End property company Shaftesbury, recently said overseas visitors may not return in numbers before “late 2022, perhaps not until into 2023, being realistic”.
With luxury European sales down by nearly a third, this potential sales time lag of up to two years needs filling by luxury brands in prime city centre locations, but how will they do it?
Darren Skey, director and founder of Nieuway Agency, says: “I think brands and retailers alike are finding and will continue to find it hard to grow their domestic customer. Many stores in particular have been so reliant on the tourist trade, in particular Middle Eastern and Asian.
“To swing both your marketing message and buy to suddenly attract a different customer takes time. With LVMH, what amounts to a local audience? They have 5,000 stores globally so I'm sure they can localise their sales a lot easier than a store who has one or two locations in the same country. We've already heard from stores in the Middle East, they have seen triple digit increases from the localised customer who can no longer travel,” he says.
“I think the changes to the buy/brand mix will be minimal to be honest. I believe stores will be going through a process of thinning their brands as opposed to finding new brands to attract a localised customer. Where brands are being picked up is if the brand has global appeal and can be translated throughout multiple customer profiles,” says Skey.
"Our brand, Holzweiler, has seen this first hand. We are seeing a really strong reaction which is going to elevate it beyond its perceived Scandinavian success story. Having products that are all encompassing is paramount. A good quality sweat top and sweat pant is going to attract a multitude of customers, especially during the global pandemic. But it's also important to offer products which have longevity and will work post pandemic,” he says.
Will this lean towards local by luxury brands be a sticking plaster or turn into a long term strategy?
“I think this will definitely be a short-term strategy,” says Skey. “As soon as borders open and the pandemic dissipates (if that fully happens at all) I believe the concentration will return to the section of customers who were previously driving the turnover. In fact, I believe we could see a complete juxtaposition from the WFH attire with people wanting to go out and express themselves again. But, who knows when this might be?” he says.
LVMH, in particular with its DFS (Duty Free Shoppers) division was busy building huge temples of duty-free luxury shopping and hotels in Europe to service these high-spending foreign visitors. In its results, it said DFS saw a significant decline in its activity in most destinations due to the total suspension of international travel, but, new services were being developed for its local customers and online sales have strengthened.
But, how many local Venetians will shop at DFS’s hugely impressive T Fondaco dei Tedeschi overlooking the Rialto Bridge? Not to mention the refurbished La Samaritaine in Paris which was scheduled to open in April 2020.
After nearly 30 months’ of renovation, a department store and a 5-star Cheval Blanc hotel with 72 rooms was to open its doors. It still hasn’t opened. In September 2020, Louis Vuitton gave us a sneak preview of the finished building by holding its womenswear show there.
David M Watts, fashion industry adviser, says: “Given they [LVMH] have deep pockets it will be possible for them to refocus on local markets in Europe but not without its challenges given the continued state of lockdown all across the world.
“I believe they should perhaps consider developing a pop-up shop menu that will allow safe shopping, but also access to digital and commerce which will create a new hybrid. Something bricks and mortar retail was crying out for pre COVID,” he says.
So, what kind of new products or changes does he believe luxury brands should focus on? “I suspect that homeware, wellness, beauty and casual wear will feature heavily,” says Watts.
“Businesses are starting to review their own product offering; sleepwear, blankets, candles, pyjama dressing and track suit iterations abound,” he says.
Victoria Beckham, for instance, has yet to make a profit from her luxury ready-to-wear label over a decade since its launch but has been finding success with products such as luxe, limited edition blankets, introduced for Christmas. It is rumoured that an increased focus on lifestyle products is in the future plan, as well as more attention paid the successful beauty and skincare products.
Watts believes the shift in product focus will be a long-term move for luxury brands. “I think this new approach to product and more lifestyle focus on product development will become a core part of business, even for pure fashion brands,” he says.
“I believe that there will also be a return to stylish dressing with less emphasis on work/corporate and more on fun. The pandemic is forcing many of us to review our social habits and one suspects that people will develop an entirely new approach to meeting with friends and socialising and dressing habits may well change with it too,” he adds.
A sales manager selling LVMH products at Harrods, who wished to remain anonymous, said even after the first lockdown locals didn’t have the same money as the wealthy international tourists, so his brands were starting to launch “entry price” items within the iconic department store. The problem with “entry price” products is you have to sell more to reach the same sales volumes. The international tourists were an easy cash cow for these retailers and now they will have to work harder for less.
Central London’s luxury shops will have to work in stages. They will first have to entice even domestic, “local” shoppers back to the prime shopping districts, and then get them spending. They will then have to hope that the high-spending tourists follow not too long after that.