Specialized media flood us with figures all the more crazy than the others. Prada plans to open 160 new stores in Asia to support its growth, PPR (Pinaud Printemps Redoute) plans to open 100 new outlets, the Swedish group H & M announced it will enter the luxury segment to counter its rival Zara. “Last but no least” if the industrial future of France seems to be doomed to die (the ratio of industrial value added in GDP is at its lowest in France with 9.8% while it is twice as much in Germany), salvation seems to come only from luxury sectors (with our national champions LVMH and Hermes), aerospace and defense.
One can however wonder about the future of this sector. If for now Asia and the BRICS generally appear as a paradise for the luxury brands, there are some signs of slowdown that are probably no stranger to slower growth in China. We are indeed far from the double-digit growth that we used to know before 2008. To take the example of Swatch, China accounted for 39% of its turnover but the yearly growth ratios are down. From a 50% yearly growth Swatch was back in 2011 to 15%. Yet the Swiss brand has planned to open 100 new stores to meet its target of 10 billion Swiss francs revenues.
Opening new outlets seems therefore crucial, a little bit like in the Horeca (Hotels – Restaurants – Coffee shops) sector (also called CHR in France) where the location of outlets determines your growth factor. However, in contrast to the HoReCa / CHR which generate a recurring consumption, the luxury sector is dependent on other purchase frequencies. But loyalty is just as essential as in other sectors. Therefore I wonder about the long-term profitability of these outlets. May not they impair the profitability of other outlets? Indeed, 25% of sales of LVMH in France from foreign tourists may be asked whether we will not simply attend a travel purchases. If you want another striking example, did you know that up to 80% of the revenues of jewelry and horology stores in Paris are generated by tourists? French stores may well suffer …
My take :
In addition to the questions raised above it seems appropriate to recall what Bourdieu said about luxury. Bourdieu, as early as 1979, showed that one purpose of consumption was to distinguish itself and to seek identification with the lower social class in the “distance”.
However, mass consumption having been made possible in Western Europe from the 1970s onwards, consumption in itself was no longer an element of identification. The social classes were no longer a representation of our place in society and the need arose to develop a person-centered approach. Brands then took over and assumed the role of differentiator.
In this race for identity, credit has enabled lower classes to buy their share of the dream and to move up. Like a rubber band that stretches and relaxes the gap between individuals narrows down only to better open up after; this race is endless because it is here that lies the rationale of luxury. You do not buy a Vuitton bag for your own pleasure but only for the displeasure of others, one might say.
In this social context the opening of new stores is a logical strategy for luxury brands. However I dare say that the segments of the population that should be targeted are not the richest but the “poorest” (actually the middle classes). My guess is that it is those very middle classes in search of identification that will make the future of luxury brands in Asia.
Posted in Strategy.
