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CREAT ING MOMENTUM CONRAN DESIGN GROUP In association with

THE RETAIL REVIEW FROM CONRAN DESIGN GROUP

COUNTER CULTURE

ISSU SUM E: 4 MER 2011


CONRAN DESIGN GROUP We use design and communication to help businesses build and maintain momentum for their brands, products and services.

RE-ESTABLISH LEADERSHIP IN INCREASINGLY COMPETITIVE MARKETS You may have been leading your sector for many years but increasingly feel others close at your heels… we will help clarify and re-state your difference to create clear separation.

STRENGTHEN THE IMPACT OF YOUR COMMUNICATIONS Inaccurately targeted communications delivered without conviction are quickly forgotten or ignored, even if the brand they are representing is strong and unique… we will help you pinpoint your key audiences and deliver powerful messages across all available media. We can work with you to choose how and when to harness the power of the web and social media to support and enhance your premium positioning.

ENTER AND POSITION YOURSELF IN NEW MARKETS As a strong player in your home market you are being sought by new customers in new markets… we help you clearly and confidently identify the qualities inherent in your brand that will take you there.

ADAPT YOUR COMMUNICATIONS FOR DIFFERENT AUDIENCES/ CONSUMERS Your traditional audience is fragmenting as the demand for luxury develops a more diverse customer profile… we will focus the expression of your brand to remain relevant and valuable to your target consumers. We focus on understanding people and how they relate to brands – as consumers, employees and opinion formers. By immersing ourselves in this ‘brand world’, we are able to identify key customer insights, which form the basis for our brand recommendations.


COUNTER CULTURE ISSUE FOUR

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ISSUE FOUR LUXURY UNLIMITED Fashionably late to the world of e-commerce Page 2 – 3

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Investment in luxury begins at home Page 4 – 7

High-end luxury switches on to hi-tech engagement Page 8 – 9

The continuing rise of China Page 10 – 11

Winners and losers Page 12

Our summer 2011 issue of Counter Culture focuses on the continued growth of the luxury retail sector. So-called ‘luxury goods’ cover a broad range of products and services, from fashion to furniture, premium drinks to prestige cars. Luxury retail has seemingly withstood the global recession and emerged stronger than ever. Yes, there is certainly a point to make about socioeconomic inequality, but traditional audiences have also fragmented and the demand for luxury now comes from a more diverse customer base. This continued growth also serves as evidence that luxury brand owners have in most cases managed to maintain growth in traditional formats while creating new revenue and brand-building opportunities through new channels and new markets. The relentless march of the Chinese economy and the related appetite for Western luxury brands has certainly fuelled growth, as has the embracing of e-commerce. Nervousness around the potential to be undermined by the free dialogue inherent in today’s digital world has been overcome and many are now harnessing the power of social media (see Facebook statistics on page 9). As a final thought, our last issue of Counter Culture focused on corporate responsibility in retail and it will be interesting to see how (or indeed if) the luxury sector responds to this trend with a greater emphasis on ‘sustainable luxury’. Watch this space…


FASHIONABLY LATE TO THE WORLD OF E-COMMERCE Fashion is a fast-moving industry: just as one catwalk look makes the high street, a newer, fresher look is ready to usurp it. Where e-retailing is concerned, though, luxury fashion houses have been anything but the trend-setting icons we expect them to be.

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ntil recently, many luxury fashion brands remained suspicious of the online retailing format, preferring to use their company websites for informative rather than transactional purposes. The past couple of years, however, have seen something of a U-turn; the success of third-party e-retail sites has forced many luxury brands to rethink their online strategies.

Online retail sales for Yoox.com and TheCorner.com were €163.7m, a 31.8% increase on the prior year. Similarly, before its acquisition by Richemont, Net-a-porter hit sales of £81.5m in the year to 31 January 2009, enjoying 3.3 million unique users per month. These success stories have proved that people are in fact eager to buy luxury goods online. They have also gone some way to dispelling some of the concerns that have prevented many luxury brands from moving online in the first place.

Particularly worrying for them is that selling high-end designer goods online could make them too accessible, thus eroding their exclusivity in the eyes of luxury customers. Luxury brands also understandably worry that e-retailing will fuel the black market for counterfeit goods. With online shops now boasting 360 degree rotation and zoom functionality, luxury goods are on far better display than ever before – making it much easier for fraudulent manufacturers to create realistic replicas. Perhaps most crucially though, the virtual space offers a very different experience to that of a physical store. Luxury retailers have long relied on exquisite shop interiors and exceptional customer service to differentiate themselves from peers and high street retailers. These atmospheric features are inherently difficult to communicate online. While well founded, these fears have not been enough to outweigh the sheer success of the third-party sites selling high-end goods. Luxury houses want in on the action – and rightly so.

In 2010 Gucci launched its first e-store which delivers to 12 countries – most of which are in Western Europe. Ralph Lauren also launched a transactional site in 2010 in the UK. Trendsetting Burberry – one of the first to launch an online store – has fully embraced the e-retail format, now offering almost all of its products online (while the majority of luxury brands still limit their online offerings to certain ranges or product categories). The British heritage brand has also developed an e-commerce site specifically for the Chinese market at a time when most are still focusing their online efforts on Europe and the US. China is home to the world’s fastestgrowing online shopping industry and Burberry has shown real savvy with an early entry into that market. Recent changes in legislation have also encouraged luxury brands to view online retailing with less suspicion.


COUNTER CULTURE ISSUE FOUR

02/03

KEY FEATURES WHEN BUYING CLOTHING AND FOOTWEAR ONLINE Source: Verdict Research, 2011 70

50 40 30 20 10

% OF UK CUSTOMERS WHO BUY CLOTHING AND FOOTWARE ONLINE

60

0 ms ru fo es ur and at fe t i e s i v e u ni ct ra o m m n s te o In e r c s t i e p op ugg Sh ct s u es s od id re P r g g u atu e y in e f te i B u ct iv bs ra Q & A f w e s n te In e r n o i o n t i o o m at i o d at u n c st f n e lp Cu lis na mm he e r s o co fu l g in Pe t re se en uc d u rch n od ea Pr nt a ws es ie e t iv f ic v i Ef t re ws fec u c v i e e f i le r od re nd Pr mer e a reta s e o s t o - u th Cu -t ct sy t a e a co n o s An to ide e v im y y t t ic ou ilit nd A b e s a ve r y p o l e c k e s c h at li ur ct f de turn nt/ vig a Pi e o y re yme d n oi c a s p a a n Ch n d e a sy s e u e a d e to Fre k an asy e ui c i s A q th at ite ery A s eliv ed Fre

Online auctioning site eBay was found liable for allowing users to sell counterfeit Louis Vuitton and Christian Dior goods online, and forced to pay €5.7m in damages to LVMH Group. The ruling and stricter guidelines will go some way to ensuring that luxury retailers can protect their brands online.

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So, while initially slow to enter the e-commerce space, luxury brands are finally catching up and taking back control of their brands online. Many are also proving that you can still offer a luxury experience online through sophisticated website design, highspeed delivery and luxury packaging. The online format offers an exciting opportunity for luxury brands to increase their revenues and reach. The most successful ones will be those that can marry the modern consumer’s desire for speed and digitally enabled convenience with a high-end experience – from first click through to delivery. CC


RETAIL EXPENDITURE ON LUXURY BRANDED PRODUCTS, EUROPE

RETAIL EXPENDITURE ON LUXURY BRANDED PRODUCTS, SHARE BY REGION

Source: Verdict Research, 2011 €150bn

€120bn

€90bn

Source: Verdict Research, 2011

2011 1. Europe 2. Americas 3. Asia-Pacific (exc Japan)

€60bn

36.4% 22.4% 24.7%

5

4. Japan

10.8% 5.7%

5. Middle East

(and others)

1

€30bn 4

€0bn 15

14

20

20

e

e

According to Verdict, the market will reach $175 billion by 2015, which is 22% higher than forecasts for the Asia Pacific region, excluding Japan.

e

The European market for luxury retail is mature and Europe’s share of the global luxury market expenditure is in decline as demand in Asian markets flourishes. Despite this there are still a great number of opportunities for growth and it will remain the most valuable luxury retail region in sales terms.

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e 12

Europe is the largest market for global luxury retailing and, like all other regions, even the home of luxury was hit by the downturn, experiencing a sales decline of $17.7bn during 2009 to then start bouncing back to pre-recessionary levels during 2010.

20

20

1 1e

09

08

10

20

20

20

20

E

urope plays a crucial part in the luxury sector, especially as its countries such as France and Italy are home to many of the world’s major luxury houses. European cities have become synonymous with fashion and luxury, with key locations including London, Milan and Paris all showcasing the forthcoming ranges during their respective fashion weeks twice a year.

Despite all our economic problems the number of very wealthy individuals in the region (those with over $300,000 in financial assets) is set to rise by as much as 10% in the UK alone and by 7% in France, Italy and Germany over the next four years based on Datamonitor forecasts. Luxury retailers are keen to capitalise on the increasing number of wealthy consumers in Europe by ensuring they have flagship stores in highprofile locations. In 2010 Louis Vuitton opened an impressive new store on New Bond Street in London and further along the road Chanel is taking on the 25-year lease of a 10,000 sq ft outlet which is currently occupied by Nicole Farhi. Slightly newer luxury brands, such as Tory Burch of the US, are also investing in prime retail locations. By investing in new company-owned stores, luxury players are also hoping to reassume control of their brand and its sales performance. Europe, like the US, has a high number of department stores, and these were adversely affected by the economic downturn with many destocking and cutting back on orders. This has prompted many luxury players to move away from relying on department stores and to focus on company-owned stores.

2 3

2012e 1. Europe 2. Americas 3. Asia-Pacific (exc Japan) 4. Japan 5. Middle East (and others) 2013e Europe 2. Americas 3. Asia-Pacific (exc Japan) 4. Japan 5. Middle East (and others) 1.

36.1% 21.7% 26.1%

5

1

4

10.2% 5.9% 2

3

36.2% 21.4% 27.2%

5

1

4

9.3% 5.9% 2

3

2014e Europe 2. Americas 3. Asia-Pacific (exc Japan) 4. Japan 5. Middle East (and others) 1.

35.7% 21.7% 28.3%

5

1

4

8.5% 5.9% 2

3

2015e Europe 2. Americas 3. Asia-Pacific (exc Japan) 4. Japan 5. Middle East (and others) 1.

35.2% 22.2% 28.9%

5

1

4

7.9% 5.9% 3

2


COUNTER CULTURE ISSUE FOUR

04/05

INVESTMENT IN LUXURY BEGINS AT HOME Europe, home of luxury icons including Chanel, Louis Vuitton and Mulberry, will remain the most lucrative luxury retail market in the world and will grow by nearly $60bn to be worth $175bn by 2015 according to Verdict Research.


Growth in Europe’s luxury market will also be fuelled by investment in online retail. Traditionally, luxury retailers have used the internet to provide information rather than sell and they are only now putting their weight behind developing an online presence. This increases accessibility to luxury as consumers, regardless of where they live, don’t have to wait until they visit

the major cities to buy their favourite products. Not only will this make ardent luxury shoppers purchase more, selling online also allows luxury retailers to reach the mass market. These consumers, who may feel a little intimidated by prestige stores or may struggle to get to these stores, can easily view and access products which may encourage them to save for that once-a-year luxury purchase.

Another driver of growth for the European market is the influx of tourists. This will only be bolstered by a number of high-profile events that are set to take place over the next five years including the 2012 Olympics in the UK, the 2014 Winter Olympics in Russia, and the 2015 Expo in Milan.


COUNTER CULTURE ISSUE FOUR

Prominent European cities are attracting foreign visitors, particularly Chinese, with a growing appetite for luxury goods. London’s major department stores, luxury shopping streets and the outlet villages surrounding the city are frequented by Chinese visitors with bulging wallets, an ability to travel and an appetite for luxury items. Despite luxury players opening stores in major Chinese cities to profit from this newfound wealth, goods in the UK can be around 30% cheaper and the sheer variety of products and brands on offer is appealing.

06/07

Chinese shoppers also know that in London they are more likely to find up-and-coming brands which aren’t yet available in their home market. There is also scope to receive some kudos at home by buying luxury brands such as Mulberry from their country of origin. In order to accommodate this demand British retailers are investing in Mandarin-speaking staff, and premium department store Harrods made a big splash in-store during Chinese New Year celebrations by following Selfridges and opening Chinese UnionPay bank terminals.

Vitally though, the European market is still benefiting overall with some Chinese tourists making trips to other luxury shopping destinations such as Paris, where the visa entry procedure is simpler. The decline of the euro has also meant that it’s now cheaper to buy luxury items in Europe creating an additional draw to the likes of France and Italy, and many luxury stores are bending over backwards to cater for the influx of tourists.

The famous department stores Printemps and Galeries Lafayette in Paris have signs in Chinese, despite not having them in English, and services The majority of Chinese people for Chinese visitors include travelling to Europe apply for a personal shoppers and Schengen visa, which enables courier services. them to enter 24 European In fact, conscious of the opportunity among this customer group, Galeries countries – but the UK isn’t Lafayette will also enter the increasingly currently part of that scheme. One key gripe of luxury brands retailers is that the visa application process for Chinese people entering the UK is hampering the growth of this lucrative group of visitors.

lucrative Chinese market in 2013, with a newly built flagship store in the Beijing’s core shopping district, Xidan. The opportunities for growth in the Asia-Pacific region are undeniable, particularly in China, but while venturing into new pastures luxury retailers must keep their eye on their lucrative home market where local consumers will continue to spend out and foreign visitors will come seeking the authentic luxury shopping experience. CC


HIGH-END LUXURY SWITCHES ON TO HI-TECH ENGAGEMENT Steeped in rich heritage, luxury houses are striding into the digital era to connect with new customers and strengthen ties with existing ones.


COUNTER CULTURE ISSUE FOUR

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rom streaming runway shows to Facebook and Twitter profiles, the world of luxury fashion is in the throes of a radical 21st century-style makeover.

08/09

LUXURY HOUSES AND THEIR FACEBOOK FANS Source: Verdict Research, 2011 6,000,000 5,000,000

Runway fashion shows – once the exclusive pleasure of a select few fashionistas – are now watched by thousands via live online streams, with English heritage brand Burberry charging ahead in this space.

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Burberry is not alone however. No fewer than 40 designers at New York Fashion Week last year streamed live videos of their shows online, illustrating just how common the practice has become, so quickly.

1,000,000

rb

The company also invited 1,500 people across the world to watch the show in-store on high-definition screens and order products via an iPad application.

2,000,000

Gu

During its spring/summer 2011 runway show at London Fashion Week, Burberry went one step further by making it possible for customers to order pieces online in real-time.

3,000,000

Bu

For its autumn/winter 2010 collection, the fashion house broke new ground when it streamed its catwalk show at exclusive events in five major cities using 3D technology. The show was also streamed in traditional 2D on the company’s website, where viewers could comment, critique, and ‘like’ different pieces in real-time using Facebook or Twitter.

4,000,000

It’s also a measure of the effort luxury houses are putting in to connect with existing and aspirational customers to boost engagement and loyalty. Technology makes it easier than ever for them to do so and some luxury brands are even venturing bravely into the world of smartphone applications. Ralph Lauren, for example, has developed apps for its Ralph Lauren Collection and Rugby brands, enabling customers get details on recent shows, view video highlights of catwalk shows, explore collections, or – in the case of the Rugby app – customise their own shirt, rate other users’ styles, and purchase their customised designs. Engagement and improved brand loyalty are the ultimate aims of these ventures, and Facebook and Twitter are popular platforms amongst luxury brands (though some fare better than others).

Dolce & Gabbana, for example, has over 2.7 million fans, while Burberry boasts almost six million fans on Facebook. Lagging behind, Prada has almost 714,000 Facebook fans and Dior just over 690,000. Social media and new mobile and internet-enabled technologies offer an excellent opportunity for luxury brands to reach out and connect with their demanding customers. In the luxury market, a good relationship between a brand and its target market is particularly important due to high price tags. Crucially though, luxury brands will need to strike a fine balance between growing their band of digital followers and maintaining that all-important element of luxury: exclusivity. CC


COUNTER CULTURE ISSUE FOUR

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THE CONTINUING RISE OF CHINA While Europe remains the spiritual home of luxury, Asia-Pacific – and China in particular – undoubtedly represent the ‘new world’ for high-end luxury retailers.

PEOPLE WITH ASSETS OVER $100K Source: Verdict Research, 2011 30 25 20 15 10 5 0 20

13

12

14

20

20

YEAR-ON-YEAR INCREASE

Chinese consumers today – aided by the internet – are also far more By way of illustration, the knowledgeable about foreign luxury number of ‘wealthy individuals’ brands and the world of celebrities and fashion. Luxury items show off in China is set to grow at new wealth and status, and foreign 19.7% per year until 2014. brands – particularly traditional British brands such as Burberry or those with These people (who have over $100,000 strong heritage – are among those in financial assets) are the target market most favoured. for high-end luxury goods. But China is an attractive prospect for a number of other reasons too. Its massive population and high number of densely populated cities mean that luxury retailers can reach increasingly large segments of new customers.

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As expected, new demand from China is chiefly responsible for the region’s strong performance. China is now a global economic superpower and luxury retailers are investing massively in the country, all too aware that the growing middle classes of the People’s Republic have excess disposable income.

NUMBER OF INDIVIDUALS (MILLIONS)

A

ccording to Verdict Research, the luxury retail market in Asia-Pacific (excluding Japan) has more than doubled over the last five years (2005–2010). More importantly, growth rates in excess of 10% year-on-year are forecast until 2014. The region is hungry for luxury goods, and with increasing wealth and spending power, there is no slowdown in sight.

In 2009, the overall Chinese market for clothing, accessories and luxury goods was worth a sizeable $155,653m. Jewellery and watches, and luggage and leather goods showed the strongest growth between 2004 and 2010 – partly as a result of the strong gift-giving culture in Chinese business circles.

Retailers and manufacturers in the luxury space can be further encouraged that there are few domestic players active in the Chinese luxury goods sector. Luxury brands are still largely synonymous with European fashion houses in the Chinese consumer’s mind. The new world dominator has never been more ready for an invasion of luxury brands and retailers. CC


WINNERS AND LOSERS GETTING IT RIGHT

MISSING THE MARK

HERMÈS

RALPH LAUREN

With leather goods accounting for almost half of its sales in 2009, its turnover grew by 22.7% in 2009 from 2008. Hermes continued to expand even during the economic downturn, with new stores predominantly directly operated allowing it to have full control over brand and merchandising. Hermes also focused on new stores in Asia-Pacific which is a key growth market – launching a local Chinese brand Shang Xia.

Issues have been caused by strong dependence on the US, combined with a lackluster approach to evolving products to reflect changing consumer tastes. Sales in 2009 fell back 0.8% on the year (between 2004 and 2009 it has dropped market share from 5.2% to 4.9%).

It will be interesting to see what happens now that the creative director, Jean Paul Gaultier has left and Christopher Lemaire has taken over. With LVMH’s stake in Hermes drawing considerable attention this may help the brand grow even further.

BURBERRY It’s become a fashionable brand again (particularly due to its creative director Christopher Bailey). Its interaction with consumers is also at the heart of current success. They have a strong presence in social media (over 6m Facebook fans) and innovative use of the internet – streaming its runway shows live. Burberry joined the FTSE100 in September 2009. Although it remains focused on its core outerwear lines, the company has expanded into cosmetics. Europe is its core market, but there’s potential to grow in the US & in Asia-Pacific (new stores are planned for China). It restructured its Spanish operations and has concentrated on cost-cutting which has helped to boost profits.

Ralph Lauren is aiming to expand its international presence but wants to focus on Europe. The brand is attempting to engage younger consumers, in November 2010 it had its first 4d fashion show – but it still needs to do more to attract younger consumers.

RICHEMONT & PPR (OWNERS OF GUCCI GROUP) They lost out on Bulgari to LVMH. With Richemont sales set to pass €6bn in FY2011 (results due out as we go to press) and with its position as no 2 in the luxury market – this was a missed opportunity for it to better compete with LVMH. Richemont has also put store openings on hold in the past few years, so it will need to act quickly before others take control of the Asia-Pacific market. However, it has seen success with its acquisition of Net-A-Porter.


COUNTER CULTURE ISSUE FOUR

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VERDICT RESEARCH: Delivering global retail insights. Retail – it’s a competitive, fast-moving sector, defined by evolving trends and constantly shifting consumer expectations

Verdict, part of the Datamonitor Group, has expanded its reach and its focus to bring you quality research and analysis on the global retail industry. • Clothing & Fashion • Electricals • DIY/Home & Garden • Health & Beauty • Food & Groceries

ENHANCE YOUR STRATEGIC DECISION-MAKING Strategic decisions taken today could impact your business for years to come. Verdict will help you to see your market from all angles and anticipate new trends and market drivers, so you can make operation-critical decisions with speed and confidence. Whether you’re looking to expand into new markets, learn from industry heavyweights, or understand the mega-trends affecting retail, our insights will help you.

A TRUSTED PARTNER Information is worthless if it’s not from a trusted source. Every day, the Datamonitor Group assists 6,000 companies to make better strategic decisions. All our retail analysts work in-house, covering five key retail sectors from an international perspective. Get access to our complimentary Global Retail FreeView service, delivering a round-up of all the major events, news, and views related to the retail industry straight into your inbox, every two weeks. Subscribe for free now at http://www.verdict.co.uk/news_ freeview.htm You can also access our research in a way that suits your needs and your budget: purchase single reports or subscribe to our Knowledge Center for instant, unlimited access to all of our content http://www.datamonitor.com/store/ Find out how our global research proposition can help you to obtain, and maintain, a true competitive edge. Email enquiries@verdict.co.uk


WE HOPE YOU’VE FOUND THE FOURTH ISSUE OF COUNTER CULTURE INTERESTING We look forward to your comments and feedback and if you have any specific points that you would like us to consider in the next issue, please do contact us at hello@conrandesigngroup.com

Conran Design Group Clearwater Yard 35 Inverness Street London NW1 7HB +44 (0)20 7284 5200 www.conrandesigngroup.com

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