Despite the unprecedented turbulence in the world’s retail markets the luxury conglomerates reported strong bounce back results this month. Both LVMH and Kering, two of the world’s largest luxury goods groups, reported extremely strong sales in the third quarter of 2020.
Left - Dior AW20 - Many luxury brands no longer have limits on how much people can buy
Considering many people aren’t even leaving the house, letting alone travelling, it was surprising to see that LVMH saw sales at its fashion and leather goods division rise 12 per cent to €5.9 billion. This was much higher than market expectations and saw standout performances from the Louis Vuitton and Dior houses. The LVMH results said Christian Dior “showed remarkable momentum.” while Louis Vuitton “continued to display exceptional momentum and creativity”.
Kering too reported better than expected results. Revenue in the third quarter totalled €3.72 billion, a fall of 4.3 per cent, but representing only a decline of 1.2 per cent in comparable terms. This represented a sharp rebound after second-quarter comparable sales had plunged by 43.7 per cent.
Kering’s main cash cow, Gucci, saw revenues rise sharply in the third quarter, compared with Q2, with revenue only down 12.1 per cent, whilst retail sales were down 4 per cent on a comparable basis. Gucci reported a 43.7 per cent rise in North America and a 10.6 per cent growth in Asia-Pacific. LVMH too saw strong spending and growth in Asia and the US.
What could be behind this huge recovery surge?
Luxury companies always had a good ‘problem' in the Chinese phenomenon of ‘Daigou’. Daigou or 'Surrogate Shopping' is a term used to describe the cross-border exporting in which an individual or a syndicated group of exporters outside China purchases commodities for customers in China. Often these are luxury goods from big-name designer houses. The main reason Diagou exists is because of the price differential in the Chinese market and buying abroad is often far cheaper even after the middle men take their cut. There is a huge amount of money to be made because of the volumes and value of the goods.
Many luxury companies tried to limit the amounts sold to Diagou so as to preserve their exclusivity and not flood the market. Rarity and scarcity naturally make things more desirable. But, it appears that some of the biggest fashion houses have opened the floodgates to these buyers and organisations, no longer limiting the amounts they can purchase. Having buyers queuing up and wanting to buy as much as you can give them looks like a temptation few brands could resist as they saw their sales fall off a cliff due to COVID 19.
At the end of 2018 it was announced that Kering was ending its joint venture with Yoox Net-a-Porter and taking charge of the e-commerce for its brands including Alexander McQueen, Saint Laurent, Balenciaga and Bottega Veneta. The partnership was slated for renewal in 2020, by which time Kering’s digital operation, which looked after Gucci separately, would have, hopefully, matured to an advanced level.
While many of the world’s busiest luxury streets have been quiet since the beginning of 2020, Kering has been using its stores to process online orders rather than its warehouse in Bologna, as it had done previously.
Right - Diagou sending Dior gifts to China?
These ‘distance sales’ are up 25 to 30 per cent throughout the group and, according to an unnamed source, they are now letting the Korean and Chinese Diagou traders buy everything they want.
“The fact that the traders are now allowed to get what they want definitely helps those brands. Even at Dior, they can buy without restrictions now.” they say.
“Some companies do it everywhere. Particularly Louis Vuitton. And Dior. For the Kering Group, before the confinement, they had vague procedures that were changing depending on what items were selling. For example, for whatever reasons, some stores were selling huge amounts of the same item (usually cheaper leather goods with a logo, like pouches). When that happened, some accounts were flagged by the directors. There is a system at Kering called ‘Luce’ where you can see who bought a particular item. Every time, a trader would come, the sales assistant had to check their purchase history.
"At one point, they also checked that the credit card they use matched their profile name. (Companies would send different people who would all use the same company card. That was flagged during audits). After the confinement, every company has relaxed the procedures. I know some traders and they told me that for instance, at Gucci or Moncler, there are no limits on items purchased.
“Even Dior doesn’t do limits of items anymore. Although I hear that Louis Vuitton and Goyard still check accounts. At Saint Laurent, there is a limit of 3 of the same item per transaction. (But they can come every day and buy 3 items - they couldn’t do that before). I understand it is happening everywhere. Also, brands like Dior have resumed doing export sales. But Saint Laurent still refuse export sales unless the client has a good reason (if there is no store in their country that carries what they want to buy). It used to be a huge market for the brands until about 2 years ago when they decided to stop it all ‘to protect the markets in Asia and the Middle East’ mostly.”
Export sales are by a foreign buyer asking for it to be shipped to their territory from a store overseas. The Korean and Chinese traders often buy closer to home in other Asian markets. The Koreans are now the biggest traders selling into China.
“When they used to call stores and ask for an export sale, they would be able to have the VAT off and the European price.” says the source.
Many Daigou are or work with sales staff, using their staff discount as an extra price differential. But, it is not really possible anymore at some brands, like YSL, because they've put a limit on staff purchases. However, the limits are not imposed throughout the Kering group and Gucci doesn’t have limits. I regularly see or hear of people buying the same products. The directors have started to flag it.” says the source.
“One would think the procedures would be the same throughout the group, but it varies drastically and depends on the CEO/ Director’s decision. There are so many odd decisions though. For instance, I heard that Gucci had cancelled the VIP discounts ... which doesn’t make a lot of sense.
There are limits in the stores but not online for Kering.... which is beyond stupid. Again, something that doesn’t make sense.
“At Kering, there is a separate online system called 'Sellsy' which is like ordering online, but through the store stock. The directors can check the accounts and stop some people from buying (if they suspect that it is for resale), but the traders can call the stores (if they cannot find items in the website) and use a different name. The credit card used cannot be checked by the stores.” says the source.
Left - Saint Laurent AW20
“Although they are starting to check the accounts again. I heard that one Korean trader got flagged and is not allowed to buy anymore. But I am sure he still does.... using various names. Some clients have more than a dozen profiles.... with same email but variations of their name. Quite surreal.” the source says.
Speaking to a Diagou reseller in China, via WeChat, they say they have direct cooperation with many of the brands, but nothing is ever ‘official’. Louis Vuitton is the best seller, followed by Dior, then Gucci. They say that COVID 19 has forced the luxury goods companies into this loose cooperation.
As for the end consumer, “Most of the clients don’t know anything about luxury. They just want to show off”. says the owner of the Diagou store on WeChat. “They don’t even have passports.”
Asked which products were most in demand at the moment and from which brands. “Every season is different. Which one is best depends how we promote.” they say.
Diagou buy and then export the goods themselves with their commission priced in. It will be interesting how the UK Tax Free shopping changes - Read more here - alters things for Daigou buying in the UK. But, then, the vast majority of reselling sales are made in more localised markets to China, hence the huge uplift in Asia.
What it does signify is the continued huge demand for named luxury goods. Which is a good sign for the industry overall.
Daigou has always been a game of cat and mouse for the brands. In one respect, this great demand is flattering for any brand, but they also want to be extremely protective of their image and how their goods are sold. COVID 19 was a massive jolt for any business and it’s understandable why many brands panicked and became more relaxed about knowingly selling to Daigou for resale into China. It could explain some of the huge bounce back in Q3 sales.
COVID created a vacuum and distorted the balance between buyer and seller. The luxury brands have turned the taps on for the Daigou market. Just don’t expect them to be on for too long.
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It doesn’t take a genius to note that now is not the ideal time to launch a new fashion business. If you are launching your new business, this season, you probably started way before this disaster of a virus appeared and it was too late not to see it through. Too much time and money has been invested to pull out. You’re not a quitter.
Left - In September, MATCHESFASHION launched its The Innovators Programme to help support young designers
It’s a bit like all those cranes on the skyline and builders finishing off their dense blocks of luxury flats. It’s too late to down tools, not finish them and get them on the market. But, fast forward six months and how many spades will still be in or breaking new ground?
There will a gaping hole of projects starting and the fashion business will have one of the largest.
The V shaped, bounce-back recession is ideal because it conserves this economic momentum and it just becomes a blip. Sadly, it’s not looking that way. There is still momentum in the market, but the longer Covid disrupts everything, momentum lessens, and the more time and energy it will take to get it all moving again. This will also make this gap even larger.
Fashion has a time lag. The time between starting and producing samples, to then show, get orders, make and then sell, and then get the revenues, is usually a long timeline. It’s a risk and nobody knows what the state of the market will be when you launch, even at the best of times. Today, many of those thinking about striking out alone and setting up their own thing will choose to put off starting well into next year when they can feel more confident about the economic landscape.
Without trade shows and fashion weeks - a vehicle to showcase to buyers - many stores and websites will reorder previous years’ product, with tweaks, from existing brands. This will only really start to show when SS21 hits the stores after Christmas and consumers will start to notice.
Fashion’s reason to be is newness, or the perception of newness, and a never ending supply of new brands and designers kept the whole industry feeling fresh and new, while established brands and giant luxury groups took most of the sales and profits.
Luxury multi-brand websites and department stores need newness to give vitality to its entire offer. It’s news, it’s buzz, it’s hype and they had it all without the financial risk. This veneer or gap needs to be filled and retailers and luxury groups are now realising that they will have to start supporting it or it won’t be there.
MATCHESFASHION has launched its year-long ‘The Innovators Programme’ designed to champion young design talent. It was built upon an existing womenswear project to include menswear and is a robust package of practical support including mentorship, preferential business terms and £1.8 million in marketing.
The programme was developed as the MATCHESFASHION team collaborated closely with designers during the Covid-19 pandemic. It became clear that many of the designers were unsure how their brands could thrive through 2020 and that practical support and ongoing commitment was required. The 12 designers are: Art School, Ahluwalia, Chopova Lowena, Stefan Cooke, Germanier, Halpern, Harris Reed, Charles Jeffrey LOVERBOY, Thebe Magugu, Ludovic de Saint Sernin, Bianca Saunders and Wales Bonner. Eleven of these designers were already partner brands and each designer was chosen "for having a unique and powerful DNA which is intrinsic".
“I am delighted that we have formalised our support for emerging talent, developing The Innovators into a programme that actually helps futureproof their businesses in what has been a tough year for the creative industry. I have worked with many of these designers for a long time and I am so happy that we are committing to their visionary collections in a practical, material way.” said Natalie Kingham, Buying Director at MATCHESFASHION. This group of designers will only contribute marginally to MATCHESFASHION’s group revenues, £372 million ended 31st January 2019, but they add far more to its brand as a destination for people who love fashion and a place to discover newness and the hottest design talent. This desire is insatiable and companies need this veneer of young designers and brands. A small financial outlay is worth the newness halo effect
In 2019, Liberty launched its ‘Liberty Discovers’ platform for up-and-coming talent. It supported designers by offering mentorship from the Liberty buying team and exposure opportunities via the brand’s communication platforms and access to Liberty’s two in-house product and fabric design studios, located within its Central London store.
Right - The LVMH Prize fund of €300,000 was split amongst the 8 2020 nominees
As for all the designer prizes, many decided to split the prize monies amongst the nominees due to the pandemic. The LVMH Prize finalists, Ahluwalia, Casablanca, Chopova Lowena, Nicholas Daley, Peter Do, Sindiso Khumalo, Supriya Lele and Tomo Koizumi all shared the €300,000 prize money equally. LVMH also pledged to support previous winners of the prize with a new fund, an undisclosed amount, and the six previous winners of the LVMH Karl Lagerfeld Prize.
In America, the CFDA/Vogue Fashion Fund was renamed ‘A Common Thread’. A Common Thread has raised over $5 million of which over $2.13 million was granted to 44 businesses in the first round of funding, $2.015 million granted to 37 businesses in the second round of funding and $500,000 granted to 47 NYC-based manufacturing businesses in the third round of funding for a total of 128 recipients across the three rounds.
Fashion’s tight production timetable and traditional cashflow model makes it very difficult for small designers and brands to survive. While the giant brands and retailers want to dominate, they also want a veneer of choice and newness. Expect to see many more funds, support and ‘prizes’ to appear from the large luxury groups and retailers.
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Fashion is pretending everything will be alright. And it will be, eventually.
We’ve just finished the latest round of women’s fashion weeks. What would, usually, have been a month of hundreds of shows stretched between the US and Europe, was a skeleton of former schedules with international fashion councils trying to cobble together something that resembled normality and hoping by the time these clothes hit the stores they’ll be some light at the end of the COVID tunnel. Even before COVID, the traditional idea of fashion weeks and shows was being questioned yet fashion weeks seemed to continue to grow exponentially, becoming a bloated calendar of designer egos. They rarely paid their way.
Left - An underwhelming Louis Vuitton womenswear SS21 collection
What this latest round of SS21 shows did was put a spotlight on the product. Without the fashion circus; the celebs on the front row, hundreds of people pushing and hustling for a ticket, and the subsequent social media onslaught and hype, the clothes and accessorises were the main focus. Replaced by fewer brands, a socially distanced frow, if any, and, a hoped for digital audience tuning in, the product had a chance to shine. It didn’t.
A hard-to-believe audience of 5 million was supposed to have watched the much panned Nicolas Ghesquière collection for Louis Vuitton womenswear telling consumers to ‘Vote”. Seeing inside the soon-to-be-unveiled Samaritaine department store was the highlight.
Other mega brands, such as Chanel and Dior, produced critically underwhelming collections. Some brands tried to think differently though. For example, Moschino hired the Jim Henson studio to make puppets dressed in its collection and a complementary characterful front frow. While the concept was great, the clothes weren’t memorable.
It’s not so much that this season was particularly better or worse than previous seasons, it is more the fact the clothes had less distractions to hide behind. For years, fashion brands have flown everybody - press, buyers - to exotic locations or spent millions on expensive sets and concepts which have all add to the spectacle while helping to disguise the fact that many of the clothes or accessorises weren’t very good. This stripping away of the shows for SS21 has exposed what many have thought for a long time; the majority of product no longer stands up on its own.
This is a broad generalisation and there are still some great ideas in fashion, it’s too big for there not to be, but many brands rely on gimmicks, and, what I call ‘design-by-email’, which tries to squeeze as much as it can from a popular line or style. Brands milk a popular style to death. Rockstuds, anyone?
There has also been this attitude, over the last few years, that ‘brand’ is bigger than any product. As the volume of product grew, so it diluted the ideas, but the ‘brand’ got bigger. It sold, so why question it? Those inside the brands didn’t or don’t seem to be.
But, COVID has made many consumers switch off. It has made many people realise they can live without a lot of this stuff and buying new and expensive stuff was just a perpetual habit they didn’t realise they had.
If nobody can see you wearing or holding it, then what is the point? For many, there isn’t one. Also, without social events, a large proportion of fashion is redundant. Sales follow need and without the need, then want starts to wane and sales dry up. Fashion is going to need fantastic product to re-engage this dormant buying audience. Some of these consumers could be lost forever.
The formulaic fashion cycle of collabs., capsule collections and drops, put a veneer of newness onto tired products and exhausted brands. Brands need to make things that people want to shout about from the roof tops and tell all their friends about.
Quality has also become an issue. People are more likely to shout about inferior quality and poor customer service than good. They are quick to social media when complaining or pointing out issues or problems. Many consumers have started to question their last purchases from these ‘luxury’ companies and the inflated price tags for mediocre workmanship. Can they justify the prices? I wrote this last year Gucci: has it sacrificed its quality in pursuit of the quirky? It is going to have to be really good to get people who don’t feel they need something to buy again.
Right - Moschino showed its SS21 collection on puppets
The luxury brands are also humouring the resale market knowing that a strong resell value makes it easier to sell the original item. It’s becoming like the used car market.
Luxury brands need new IT bags and products. Products that stick and become classics and tropes in their repertoire of styles. For example, Dior has been pushing its Saddle bag over the last couple of years, for both men and women. It is a design with a price tag of £2,500 from over 20 years ago. Where is the new Saddle bag for that house?
Brands have become obsessed with newness, but it’s also made the whole business feel more disposable and it needs the brands to stand behind designs and give consumers the confidence to buy. Gucci has done it with its bag collections. Most have become like the fragrance market; continual launches, usurping previous versions with very few lasting more than a few years.
It doesn’t look like things will be much different come next February and March when the next round of AW21 shows are due. Fashion is reactionary but it also needs to go back to the basics of product. While it’s harder to create classic styles, they can do something about quality.
They’ll still be a physicality to showing fashion, whatever happens, and, while brands are concentrating on stemming their losses atm, post-COVID, it has to be about product, product, product. And it needs to be good.
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