12205 drapers luxury_report-single

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12205 drapers luxury_report-single

  1. 1. Compiled byANASANTIIllustrations byNATHALIE LEESTheLuxuryReportSPONSORED BY
  2. 2. Drapers/November172012_25Introduction I Luxury reportThe fashion industry has hadits fair share of ups anddowns since the globalrecession of 2008, but forthe luxury fashion sector,the ‘downs’ have been fewand far between. Themainstream market looked on with envy asprofits in the luxury sector soared and huge,shiny flagships opened as quickly as those in themid-market closed.Luxury fashion seemed invincible, but thenBurberry posted a profit warning in September.Warning bells began to ring as China – the darlingof growth for luxury – saw growth in its economyslow. So what does this mean for the UK luxurymarket? We decided to find out by launchingDrapers’ first in-depth report into the sector.In September, we compiled a survey and askedbusinesses in the luxury fashion market – includingboutiques, brands, etailers, department stores,multiples and agents – to tell us how they’re faringtoday and their expectations for the future. Over thenext 14 pages, we analyse these findings acrossdifferent business segments, from ecommerce andsocial media to tourism, international retailing anddistribution and buying strategies.Further in-depth analysis also comes fromGuy Salter, deputy chairman of Walpole, themembership group for the British luxury industry,whose insights help to interpret our findings.Ana Santi, deputy editor, DrapersInfor is proud to sponsor Drapers’Luxury Report. In the constantlyevolving world of fashionit is essential to know your customersand understand how they identifywith you. Brand identity must beingrained in the entire productionprocess, from initial design to shop-floor deliveryto meet the ever-demanding expectations ofluxury consumers.Luxury was founded with the model ‘seducethe customer, control the supply chain’. While thismodel is still intact today, we find that many in theluxury sector have found success using a modelthat relies on ‘listen-react-respond to thecustomer and collaborate with the supply chain’.By its very nature, couture will remain theseductress for luxury fashion. Much of luxuryfashion still manufactures many of its ownproducts but, as their product lines have evolved,many are now sourcing globally.Infor is no stranger to the luxury goods market.Our first luxury goods customer was signed in1992 and they are still with us today. For morethan 18 years, we have helped more than 1,100fashion companies in 194 countries improvetheir processes to become more efficient andcompetitive. But why do four of the top 10 luxuryfashion companies use us? Because weunderstand every business’s individual needs andtailor our products accordingly.Robert McKee, director, fashion industry strategy, Infor‘We ask how the luxury market isfaring and what the future holds’_ Ana Santi‘It’s vital to know your customersand how they identify with you’_ Robert McKeeSponsored by
  3. 3. luxury report I the current outlookDrapers/november172012_26Since the global recession of2008, one sector of the fashionindustry has appeared, perhapsunsurprisingly, to weather thestorm. While the mid-marketbegan to witness plummetingsales and business closures,the luxury sector boomed.But then, this September, UK luxury fashionbellwether Burberry posted a profit warning.Admittedly, investors breathed a sigh of reliefthis month, as Burberry reported an 8%increase in revenues for the first half, butpre-tax profits dropped almost 30% due toa one-off payment to end its fragrance andbeauty licence.Yet last month, global consultancy Bain &Company released its annual Luxury GoodsWorldwide Market Study showing a slowdownin luxury goods sales. According to the report,the value of the total luxury goods market isexpected to rise by 5% at constant exchangerates to €212bn (£170bn) this year, comparedwith an increase of 13% last year.In the same week, LVMH – the largest luxurygoods group by sales – said organic sales growthin the third quarter had fallen to 6%, comparedwith 15% growth in the same period last year.Mulberry soon followed, also posting a profitwarning, which took almost one third off itsmarket value.LuxurylifestyleDrapers finds out how the luxury fashion sectoris faring and its expectations for the futureWords by ANA SANTI Illustrations by NATHALIE LEESIf you have bricks-and-mortar stores, how manydo you expect to have by the end of 2013?Same MoreOn average, byhow much didturnover increase?On average, howmuch did yourprofits increase?Was your profit for 2011up or down on 2010?Down14.9%Up85.1% 23.2%Down 22.6%Up 77.4%18.5%FewerWas your turnoverfor 2011 up ordown on 2010?100%of department storessaid turnover was upin 2011 against 201060.9% 32.8%6.3%
  4. 4. So, should the luxury sector in the UK beworried? Our survey found a healthy industry,confident of further growth in the next year.But few businesses were complacent. Therewas an air of caution, with the majority notexpecting the economy to pick up until theend of 2014.While that overview paints a good picture ofthe state of the overall luxury fashion market inthe UK, the most interesting nuggets lie in thedetails of our survey. Some 85.1% ofrespondents said their turnover was up in 2011against 2010 and 77.4% echoed the sentimentin terms of profits. Splitting this down further,department stores and pure-play etailerscame out on top, with 100% of respondentsin each segment recording a rise in turnoverover the same period. For brands, the numberwas 90% and for indies it was 73%. Onaverage, turnover increased by 23.2% andprofit by 18.5% across all segments.Luca Solca, senior luxury goods analyst atinvestment company Exane BNP Paribas,is not surprised that independent boutiques,which had a good year nonetheless, didn’tfare as well as department stores and brandslast year. “Brands are integrating theirdistribution more and more, particularlywith mono-brand stores. The traditionalindependent has less of a role to play andthey find it harder to finance their businesses,”he explains. “And department stores areperforming more of a selection function. Lookat Liberty – it has come up with an interestingselection of brands and products, with nicherbrands and designers to offer consumerssomething different. Luxury consumers arekeen to find novelty. They’re paying moreattention to their spend, to differentiationand distinction.”In terms of investment in 2012, 54.1%of respondents (the highest percentage)invested in their staff, with 51.4% alsoinvesting in digital marketing and the samefigure investing in new products and brands.Digital marketing topped the investment listfor brands. For multiple retailers, staff anddigital marketing were most important, whiledepartment stores ploughed money into staff,new brands and digital marketing.Looking ahead, 92% and 89% of businessesexpect turnover and profits to rise respectivelyover the next year. Luxury brands forecastturnover to increase by an average of 27%,while indies expect a 15% rise.Optimism is clearly in the air and, overthe next few pages, we look at how luxurybusinesses hope to fulfil these ambitions.It seems counterintuitive to those outside theindustry that the luxury sector has experiencedstrong growth despite the challengingeconomic environment. This resilience hasn’tsurprised me but the level of performance has.Conditions have worsened recently, so wemust be ready for a tougher ride but I remainsure our business model is well suited tocontinue to benefit from the type and patternof affluent spending.The luxury department stores and the pure-play luxury etailers have held up particularlywell. Those department stores who strain everysinew to keep maximum freshness, productvariety, exceptional in-store experience andservice will remain appealing to the luxuryconsumer and international tourists.It’s good to see that businesses havecontinued to invest in their online presence anddigital marketing, although it would have beenshortsighted not to do so, as luxury brands’ability to produce high-quality content givesthem an advantage. Luxury ecommerce willcontinue to grow for those that offer a trulyintegrated customer experience. Few are now.Simple things like user experience, navigationand checkout could be much improved.Deputy chairman, Walpole‘Luxury ecommercewill continue to grow’/ Industry View /Guy SalterDo you expect turnover to rise next year?What did you invest in this year?YesNoDo you expect profits to rise next year?Yes89%Indies expectturnover to riseby an average of15%in the next yearThe averageincrease in profitof multiples was28% Digital marketing51.4%Union Pay16.2%Interiors / shopfit48.6%Mandarin speakers16.2%New EPoS system16.2%M-commerce16.2%Personal / VIP shopping27%Staff54.1%CRM systems29.7%Opening stores27%New products / brands51.4%Paying down debt27%92%8%No11%Sponsored byDrapers/november172012_27
  5. 5. luxury report I going globalDrapers/NOVEMBER172012_28Do you sellinternationally?40%of department storessell internationallyvia their websiteA website 85.7%A licensing agreement 17.9%An agent 14.3%Own international stores 7.9%Multi-brand retailer 10.7%What percentage of your businessis from international sales?What percentage of your salesin the UK come from tourists?Less than 10% 37% 10%-20% 18.5%21%-30% 7.4%31%-40% 7.4%51%-60% 11.2%61%-70% 7.4%71%-80% 7.4%81%-90% 0%91%-100% 0%41%-50% 3.7%Less than 10% 30%10%-20% 40%21%-30% 5%31%-40% 10%41%-50% 5%Morethan 50%10%Yes81.8%No 18.2%If you sellinternationally is it via:Sponsored by
  6. 6. uInternationalexchangeWhen Burberryposted its profitwarning inSeptember, thebrand blamedin part theslowdown in theChinese economy. Bain & Company’s annualreport also attributed the decline in growth ofthe luxury goods market to Chinese consumersspending less at home and giving fewer gifts.Clearly, luxury businesses have been relyingheavily on thriving international markets,notably China, to drive overall growth.In the UK, according to our survey’srespondents, international sales will continueto be important to overall growth, but thesebusinesses have far from saturated their salesopportunities abroad. Although 81.8% ofrespondents sell to international markets,37% of businesses (the highest percentage)said less than 10% of their turnover comes frominternational sales, with 18.5% (the secondhighest percentage) claiming international salesmake up between 10% and 20% of turnover.“The luxury sector has seen solid growth ineconomically emerging Asia with the rapidevolution of the Chinese and other economies,”says Robert McKee, director, fashion industrystrategy at Infor. “The recent slowing in the rateof that rapid economic evolution will have anobvious impact on that rate of growth – but itdoesn’t have to impact profitability. Of equalconcern has to be the dilution of luxury brandequity stemming from counterfeit luxurymerchandise making its way into all the marketsglobally. Are luxury brands doing all they canto combat this dilution to both brand equity andrevenue? It would seem that a key to combattingluxury counterfeiting comes through the use oftechnology to verify product pedigree. Fromserialisation to the use of embedded RFID[radio-frequency identification] through theentire supply chain – from concept to consumer– the products and all their components haveto be traceable throughout the value chain.”Of those who sell to international markets,85.7% do so via a website. Other methods suchas licensing agreements, via multi-brand storesand own stores, remain relatively low, withless than 20% of respondents choosingeach model, thereby highlighting potentialnew sales channels.Drilling into these numbers, we foundthat 57% of brands and all multiple retailerssell to international markets, and 32% of indiesdo so. Andrew Robb, chief operating officer atFarfetch.com, which facilitates independentretailers’ online businesses, says 32% is actuallyquite high. “It’s really difficult for independentsto sell online internationally because they haveto deal with the complexities of pricing, returnsand marketing,” he explains. “To be both a greatonline and offline retailer you need to invest, butmost boutiques are small. Matches and Brownshave put serious online teams in place andinvestment. But if you don’t have an onlinechannel, you’ll suffer. The boutiques that do itwell will be fewer [in the future]. It comes downLuxury businesses are looking overseas for growthDrapers/NOVEMBER172012_2944%of respondentssaid WesternEurope is theirbest-performinginternational market32%of indies sellinternationallyvia their website100%of multiples sellinternationally; 82%via a website; 36%via their own bricks-and-mortar storesWords by ANA SANTI Illustrations by NATHALIE LEES
  7. 7. Drapers/NOVEMBER172012_30to the owners having a passion and intuitiveunderstanding of the online space, and inparticular, online marketing. You need massiveinternational appeal.”In terms of specific international territories,Western Europe gets the top spot, with 44% ofrespondents saying it was their best-performingmarket. The US topped the list for 36% ofbusinesses. Other territories were more balanced,with 28% placing China fourth in the rankings,the same percentage putting Brazil in fifth placewhile 36% said Australia was their eighthbest-performing market.Looking ahead, 60% of businesses expectthe above mix to change over the next five years.What is interesting from the results is the waythat different territories will, on the whole, be ona more level playing field. For example, WesternEurope is still predicted to be the number oneinternational market for the respondents, but only30%, rather than 44%, believe so. There could betwo reasons for this. Either the respondents aresimply unsure or, as growth in emerging marketsslows, businesses are more reluctant to put alltheir eggs in one Chinese basket and are, instead,spreading themselves across territories dependingon their business type and those territories’different demographics. Having said that, 53%of respondents said China is having the biggestimpact on the global fashion industry, followed(far behind) by the US at 13%.China also leads the way in tourism – 40% ofbusinesses said between 10% and 20% of theirsales in the UK come from tourists, with 46% ofbusinesses ranking the Chinese top of their touristtable. 31% said Western Europeans were theirsecond biggest tourist group. Further down thelist, 23% said Russians were at number six and46% said Brazilians were ranked seventh.“Non-EU international spend in the UK hasshown continual growth year on year – with Chinaleading this growth, reporting spend increasesof 29% year on year between January andSeptember,” says Richard Brown, vice-presidentof tax-free shopping operator Global Blue UK.“Europe is seen as the world’s leading destinationfor luxury shopping, especially among those whomake shopping a priority when travelling.Products are becoming more diversified andthe demand for high-end, luxury productsand tailor-made services is increasing amonginternational shoppers. Due to the tax refundpolicy and exchange rate, many European luxuryproducts are estimated to be up to 20% to 30%lower than in their home nations, and oftenoverseas tourists will still choose to buy an itemfrom London, even if it is available in their homecountry, so that they are able to talk about buyingit from a famous London store.”Brown adds that China and the MiddleEast remain the top international spenders,representing 54% of all international non-EUspend. “Chinese spend has seen steady year-on-year increases. However, it is the Middle Easternnations who have seen the most substantialincreases – 50% year on year in September,with some individual transactions exceeding£1m,” says Brown.He believes that the top internationalspenders are unlikely to change dramaticallyin the next few years, but adds that Global Bluehas seen significant increases in spend fromNigerian and Indonesian visitors. “These twocountries, which account for only 9% of thetotal non-EU spend, have shown enormousyear-on-year growth in September comparedwith last year – Indonesia at 54% and Nigeriaat 32%,” says Brown. “For Nigerians, Londonhas become a top shopping destination, withmany visiting to purchase UK items cheaperthan imported and sold in their native Lagos,and Nigerian men particularly enjoy gettingsuited and booted in UK designer brands.“Nigeria is forecast to become Africa’s biggesteconomy by next year. Meanwhile, Indonesia isonly in the 15 top international spenders in theUK, and only 1% of the population are able totravel for holiday or business reasons, but theirSeptember average monthly sales are comparableto China and the Middle East.”I am surprised that of the businesses surveyed,40% of them noted that only 10% to 20% oftheir UK sales came from tourists and that 37%said international sales made up less than 10%of their turnover. I would expect those figuresto be higher, with tourists and internationalsales accounting for a much bigger percentageof overall sales of the UK luxury businessessurveyed. But a factor in this could be thedifferent trading patterns experienced in2012 with the Jubilee and the Olympics.Luxury is a global business attractinga global clientele. Perhaps some UK luxurybrands need to work harder to become morecommercial and more relevant in certainkey overseas markets. Likewise all brands arenow looking seriously at how to get betterat attracting and selling to affluent visitors.I am not surprised that the Chinese areranked top of the tourist table and weare working closely with the Governmentto help further increase Chinese visitornumbers to the UK.Deputy chairman, Walpole‘Luxury attractsa global clientele’/ Industry View /Guy Salter luxury report I going globalChinathe countryimpacting moston the globalfashion sectorat the moment30%of brandssaid theydidn’t expectmore salesto come fromtourists inthe next year46%of respondents said the majorityof tourists come from China while31% said Western Europe was thesecond biggest tourist groupWhich are your best-performinginternational markets?18% of multiples said thiswas their number one marketWestern Europe
  8. 8. DoingitforthemselvesWith sales from wholesale divisions expected to continue todecline over the next five years, brands in the luxurysector are turning their attention to retail55%What percentage ofyour total turnovercomes from wholesale?What percentage of yourturnover do you expectwholesale to contributeover the next five years?39.5%“The wholesale model does not haveenough margin. Only a few establishedwholesalers will survive – those who areable to review their business and approachto consumers, including investments ine-business, to become more internationallyknown,” said one respondentSponsored byWords by ANA SANTI Illustrations by NATHALIE LEES
  9. 9. uOver the past few years,we’ve seen many luxurybrands report strongersales from their retail,rather than wholesale,divisions and, as a result,have focused their effortson growing the former. The luxury brandssurveyed said 55% of sales come from theirwholesale channel but, over the next five years,they expect wholesale to make up less thanhalf of total turnover – 39.5%. Respondentsexplained the reason for this predicted change,with one saying “the wholesale model does nothave enough margin”. Another added: “Thewholesale segment is falling down. Only a fewestablished wholesalers will survive, those whoare able to review their business and approachto consumers, including investments ine-business, to become more internationallyknown.” One respondent simply said this isnow the “rule of thumb”.As investment firm Exane BNP paribas’Luca Solca says: “If wholesale isn’t dead, then it’sseverely damaged.” Solca explains that industry-wide, deep discounting over the past few yearshas led brands with a traditional wholesale modelto become more protective and take more controlof all elements of their business, from pricing,to marketing and distribution. “The strongestbrands are taking steps to manage their owndistribution. But brands have to be preparedto invest more capital back into their business tofinance directly-operated stores, for example.”He also expects fewer independent boutiquesto enter the market. “The more sophisticatedboutiques will become masters of selection,in a smaller scale to department stores.”This shift is also affecting the skillset amongluxury professionals, says Mathew Dixon,director at luxury recruitment consultancyHudson Walker International. “Nobody usedto talk heavily about sales [in the luxury sector]but brands are developing much more aggressivebusiness models with underlying sales ethics. It’sa very sales-driven environment now with morecommercially-oriented roles.”As for buying strategies among retailers,forward order remains the norm, representing62% of total budget. But in the next year, thisis expected to contribute to more than half ofbuyers’ budgets – 53%. Respondents listedthe following as their best-selling brands (in noparticular order): Vivienne Westwood, J Brand,Equipment, Isabel Marant, Alexander McQueen,Stella McCartney, Diane von Furstenberg, LouisVuitton, Rick Owens and By Malene Birger.Looking at specific markets, sales weregenerally up on a year ago for the majorityof respondents – 89% – across womenswear,menswear, kidswear, accessories, footwear andlingerie. Only 10% of respondents said saleswere down in womenswear, kidswear, footwearand lingerie, with menswear and accessoriesshowing a clean sheet. 25% of respondentssaid menswear sales were up between 10%and 20%. Meanwhile, 50% said footwearsales had increased between 0% and 10%,and 46% said womenswear sales had risenby between 10% and 20%, while 27% saidaccessories had seen the same increase.Wholesale will always be with us but it istougher than ever. It’s not just the squeezeon margins but the lack of control. There is atrend towards getting out of accounts that areeither too accessible or don’t present the rightenvironment for luxury, even if that meanstaking a short-term hit on revenues.The strength of menswear and accessoriesisn’t a surprise and in my view is based onunderlying strong fundamentals.Deputy chairman, Walpole‘Wholesale istougher than ever’/ Industry View /Guy Salter46%of respondents said womenswearsales were up between 10% and20% compared with a year ago50%of footwear sales were up between1% and 10% compared with a year ago19%of brands areproducing morecollections thana year ago27%of respondents saidaccessories sales wereup between 10% and 20%compared with last year
  10. 10. luxury report I buying & distributionDrapers/november172012_34Manufacturing case study Honey ClothingCustomersChristopherKane,PaulSmith,Preen,RolandMouretAs a Sedex-certified[an ethical andresponsible supplychain standards body]premium outerwearmanufacturer, tradingis relatively soundand improving everyyear. More and moreBritish designers andhigh-end brands aremaking some of theirlines here in the UKand we are benefiting.I think the luxurysector has tradedbetter than the restof the fashion market[in the economicdownturn].The British FashionCouncil has betterorganised LondonFashion Week in recentyears, which hasmotivated high streetbrands and designers.Consumers aremore aware of wheretheir clothes are beingmade and they arewilling to pay extra ifmade well in an ethicalworking environmentin this country.We’re experiencingdemand for high-quality pure wool, andspecialised leather isgrowing each year.London-basedmanufacturers arecompeting withestablishedmanufacturers fromFrance and Italy.Established Britishdesigners are alsochoosing to bring backtheir production fromcontinental Europe tothis country. As long aswe can keep up thequality, the demandwill grow further.Mahbub Ullah, accounts managerManufacturing case study Johnstons of ElginCustomersBurberry,Chanel,HermèsTrading is tough. Amild winter in 2011 leftour customers withtoo much inventory inour product categoriesresulting in smallorders for 2012. TheOlympics, weatherand a less competitivecurrency in relation tothe eurozone allimpacted on touristtravel in August 2012,which affected ourcustomers.A slowdown indeveloping marketsis also affecting ourglobal luxury clients.The luxury sectorhas traded better thanthe wider market,however, it has slowedin terms of growthpotential comparedwith two years ago.Opportunity still existsin markets such asBrazil, India, Russia andChina, which, althoughslowing down, willcontinue to grow.Both private-labelsupply to globalbrands and thedevelopment ofour own-brand offerwith independentwholesale customersand via our own retailhas driven growth.Menswear isparticularly strong asis the local Scottishtourist market.Next year I expectcontinued growthwith private-labelcouture and luxurybrands, and a moreeffective sales effortfrom our owncompany in theScottish tourist market,the wider market andparticularly the US.We intend to growour export sales fromthe current 25%turnover to morethan 30%.James Dracup, group managing director60%of etailers’ budgetsgo on forward order46%of womenswear sales wereup between 10% and 20%compared with a year ago50%of footwear sales wereup between 0.1% and 10%compared with last year27%of respondents saidaccessories sales wereup 10%-20% on last yearForward order isexpected to make upof total buyingbudget in thenext 12 months 53%
  11. 11. Drapers/november172012_35Manufacturing case studyHarris TweedCustomersBrooksBrothers,Chanel,SaksTrading is currently very good. We are samplingwell for autumn 13, and our top-end customersappreciate the marketing and images we havecreated to promote the history and provenanceof Harris Tweed.We believe the luxury sector has tradedwell because clients seek quality and productsthat last. Price deflation over the past 20 yearshas created a disposable product, which isno longer acceptable. Our customers wanta product that is robust and fit for purpose,and they are prepared to pay for it.We have also developed two new finishesworking with WT Johnson textile finishers ofHuddersfield. The new finishes and creativecolours and designs will drive sales.Demand in the UK luxury sector is less strongthan in other countries such as Japan, the USand Europe, probably because the UK highstreet brands over the years have driven theprice of Harris Tweed down, so it does notreflect the artisan processes of carding,spinning, hand-loom weaving and finishingthat the luxury market tends to respect,appreciate and pay for.Malcolm Campbell, salesand marketing directorfor the Carloway MillManufacturing case studyAlfred BrownCustomersAquascutum,Jaeger,PaulSmithTrade is very good.We think peopleare buying less butspending more onindividual items,which is helpful tous, because beinga European weaverwe will always be atthe luxury end.In difficulteconomic climates,the luxury and bottomends of the markethold up better thanthe middle market.Fabric woven inBritain is still strongand this plays intothe luxury market.The biggest driveris the fact that all ourfabrics are woven inBritain and some ofthis sentiment isbeginning to showin the womenswearmarket, which isgrowing for us.Our biggest marketthough is menswear –semi-plain fabrics arestrong, especiallyslightly bolder colours.Next year, I expecttraditional Englishfabrics, with a moderntwist, to drive sales.I think the Jubileeand Olympics havegiven us a belief inourselves as a nationand this encouragedthe demand for Britishmanufacturing andgoods. We have had agood year and we willbe pleased if we canmaintain this growthin the year to come.Ian Brown, joint managing directorHow is your buyingbudget split?Forward order61.67%Closer to and in-season16.88%Resort / pre-collections16.88%House brands51.67%Own brands40.83%What is yourbest-selling brand?Alexander McQueenBy Malene BirgerDiane von FurstenbergEquipmentIsabel MarantJ BrandLouis VuittonRick OwensStella McCartneyVivienne Westwood58%of respondents said menswearsales were up between 0% and10% while 25% said they wereup between 10% and 20%Sponsored by
  12. 12. Drapers/november172012_36 luxury report I social mediaThemovetomultichannelWith digitalmarketing listedhigh among thedifferent areasof business thatrespondentsinvested in for2012, it comes as no surprise that the internet,and social media in particular, are crucial to thegrowth of the luxury sector.Almost 33% said up to a fifth of their businesscomes from online sales, while 22% said onlinesales account for between 21% and 40% ofturnover. More than 90% expect online sales toaccount for even more of their total turnover inthe next 12 months, with 56% citing online salesas the biggest growth area for their business. Anyreservations that luxury brands had about sellingtheir collections online have disappeared, with100% of respondents unconcerned about theirproducts being sold on a stockist’s website ratherthan a bricks-and-mortar store.Martin Newman, chief executive of ecommerceconsultancy Practicology, says these figures areencouraging and expects bigger growth for theluxury sector from online sales. “The [businesses]who take that leap are the ones that link theirmultichannel functions, and I’d say departmentstores [have a better chance] because they have abroader product proposition,” he says.Mark Henderson, chairman of the LondonLuxury Quarter and non-executive chairman ofBritish tailor Gieves & Hawkes, says click-and-collect is a “phenomenal” opportunity for luxurybrands: “The majority of luxury purchases arepre-considered and that is an enormousopportunity for luxury retailers, certainlythe [‘collect’] opportunity because shoppingis an experience of temptation.”Luxury brands have embraced social media– 97.1% are on Twitter; 94.3% on Facebook;57.1% on Pinterest and 37.1% on both Instagramand Google+. Brands and indies need to step uptheir game though, with only 57% of brandsand 45% of indies on Twitter. 57% of brandshave a Facebook page, while 41% of indies do so.Newman believes social media offers thebiggest opportunities to brands “because theyhave a stronger relationship with the endconsumer, it’s about how you leverage socialmedia and create a community,” he says. “Iquestion the traction of Google+, but if a brandisn’t on Pinterest, it’s missing out. Pinterestseems to have the highest level of engagementwhere the engagement is very product-focused.Facebook is harder – people are engaging withfriends and family on it.”Infor’s Robert McKee agrees: “Today,Facebook is a community – a very successfulcommunity – but luxury fashion companieshave the ability to create their own communities.Brand loyalty in mainstream fashion is very much‘easy come, easy go’, but luxury fashion enjoysa prestige factor that is not afforded to themainstream. Whether it’s brand loyalty orconspicuous consumption, the merchandiseis sought-after. This brand loyalty representsa group of people with like interests – or – acommunity. Luxury companies need to beginbuilding their own online social communitiesaround this brand loyalty. Listen to yourcommunities. From colour palettes to silhouettes,your community has an opinion and they’reanxious to share that with you.”Most businesses – 97.1% – use social mediafor brand awareness, which topped the listabove marketing in second place, customerservice in third place and sales ranked last.It is encouraging to see that 68.6% ofrespondents have a daily presence on socialmedia, with 8.6% using different platforms“more than 10 times a day”. With the purposeof social media being instant and regularengagement with customers, a strong presenceon these sites is a must.Investinginonline,particularlysocialmediaplatforms,iskeyforretailers’growthintheluxurysectorSocial is a hugely influential communicationschannel. A lot of luxury brands are reticentabout engaging with their consumers via socialmedia, as it can be difficult to retain control. Butif harnessed in the right way, it is a powerful andeffective way to build a brand’s consumer base,generating customer engagement and loyalty,attracting visitors to online stores and drivingsales. Everyone is still learning.Deputy chairman, Walpole‘It’s a powerful wayto build consumers’/ Industry View /Guy SalterWhat proportion of your business is online?Twitter 97.1%Facebook 94.3%Pinterest 57.1% Instagram 37.1%Google+ 37.1% None 15.8%0.1%–20% 32.9%21%–40% 22.4%41%–60% 14.5%61%–80% 6.6%100% 7.8%Do you have a presence on any of the following?Words by ANA SANTI Illustrations by NATHALIE LEES
  13. 13. Do you expect your online businessto grow in the next 12 months?No 6.6%Yes 93.4%(by 1%–10%) 39.5%(by 11%–25% ) 25%(by 26%–50%) 10.5%(by more than 50%) 15.8%Not applicable 2.6%How active are you on the main social media sites?More than 10 times a day 8.6%Daily 68.6%Several times a week 5.7%Weekly 8.6% Several times a month 0%Monthly 5.7%Less often 2.8%What do you use the main social media channels for?40%of departmentstores have a dailypresence onthe main socialmedia channels82%of multiples havea daily presenceon the main socialmedia channelsDoes selling yourcollections via astockist’s websiterather than a bricks-and-mortar storeconcern you?48%of brands havea daily presenceon the main socialmedia channels27%of indies have adaily presence onthe main socialmedia channelsSales45.7%Customer service62.9%Marketing77.1%Brand awareness97.1%9%of indies have an app,mobile-optimised siteand use QR codesDo you have anyof the following?No100%Yes0%An app 41.2%A mobile- 76.5%optimised siteUse of QR codes 35.3%Sponsored by
  14. 14. What is the biggest growtharea of your business?Online55.6%International27.8%Sales in store38.9%Internationaland onlineexpansionare two ofthe mostpopular areasof growth formultiplesWhen do you believe theeconomy will start to pick up?Start of 2013 14.8%End of 2013 18.5%Not until 2014 25.9%Not until 2015 25.9%Not until 2018 14.9%Brands expectonline sales tobe the biggestgrowth drivernext yearOutside London,which are the otherhot spots in the UK?ManchesterLiverpoolBirminghamLeedsOxfordCambridgeBicester Village36%of multiples believethe economy willpick up from 2014onwards, while 15%believe the economywill pick up at theend of next yearAre you confident aboutbusiness over the next 12 months?Not at all. 0%I am worried mybusiness might fail Not really. I think 13.6%it’s going to be tough I think things will 23.7%remain the same I am quite confident 30.5%trade will begin to pick up I am confident my 27.1%business will grow Very. Things are 5.1%going really well
  15. 15. Drapers/november172012_39GreatexpectationsDespite respondents’ earliercomments that they expectturnover and profit to grownext year, 25.9% (the jointhighest percentage) do notexpect the economy to pickup until 2014, while thesame number think it will be even later – not until2015. Meanwhile, 18.5% believe there could besome improvement by the end of next year, whilethe optimistic few – nearly 15% – think it couldbe early in the new year.Over the next 12 months, 30.5% are “quiteconfident” that trade will pick up, with 27.1%“confident” that their business will grow. Nearlya quarter believe trading will remain the same,while 13.6% predict “it’s going to be tough”. Themajority – 55.6% – believe growth next year willbe driven by online sales.The Bain report estimates that the luxurygoods market will grow by 4% to 6% from 2013to 2015, pushing the sector to between €240bn(£192.3bn) and €250bn (£200.3bn) by 2015.Mark Henderson, chairman of the LondonLuxury Quarter and non-executive chairman ofGieves & Hawkes, believes the luxury sector willcontinue to grow “because people want the best”.He adds: “Tourism is growing, and London’sreputation is growing. The trend at the momentis towards craftsmanship and individualism,which supports the luxury sector’s values.”While few expect the economic gloom to lift in the near future, many in theluxury sector are optimistic that their business will continue to growHenderson cites Harrods as a great exampleof the type of business that will lead growth inthe luxury sector. “We seem to have particularlygood department stores in this country. Harrodsis an outstanding business, and [managingdirector] Michael Ward is a genius,” he says.“It’s a fabulous experience of temptation asyou can move from one brand to another.Equally, walking into the Louis Vuitton storeis not the same as walking into the Louis Vuittonconcession. I think they [department storesand own-brand stores] live incredibly comfortablyForecasts for continued growth in luxury arepositive across all markets and categories, butthe next 12 months could be challenging, andsales increases are likely to be more modestthan in recent years. Ongoing uncertainty inthe eurozone, the muted outlook for the UKeconomy and concerns about China’sslowdown could have a short-term impact.However, long-term prospects look good. I’mas excited as I have ever been about the future.Deputy chairman, Walpole‘Long-term prospectsare extremely good’/ Industry View /Guy Salterside by side. The future looks pretty good. I amhugely optimistic.”For Infor’s Robert McKee, the success of theluxury sector lies in its analysis of information.“At the core is business intelligence, pulling ininformation from different sources. The luxuryindustry is much more right-brained, thereforeit has a great deal of difficulty in intellectualisingits business models. Luxury often makes moneyin spite of itself, because of its prestige, but theluxury sector has huge potential, even beyondits current results; it needs to be more technology-attuned,” he explains. “Too much emphasis isput on high margins rather than efficient businesspractices. History is littered with luxury apparelcompanies that forgot to run an efficient business.Let’s not forget that when all the glamour isstripped away, you still have a business to run.If you have to flatten growth, it doesn’t meanyou have to flatten profits. You should beable to control your profitability with betteroperating efficiencies.”While luxury businesses do have reason to beoptimistic, the industry is likely to experiencea readjustment. Recent profit warnings andslowdown in markets such as China mean thatcompanies will need to work harder to findpockets of growth. There may be a short-termslowdown, or even short-term losses, butbusinesses that understand their brand’s valuesand adapt to a changing market will prosper.future prospects I luxury reportSponsored byWords by ANA SANTI Illustrations by NATHALIE LEES

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