The capitals of Europe were long 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.
Left - Interior of LVMH duty-free travel division DFS's T Fondaco dei Tedeschi in Venice
David M Watts, Fashion Industry Advisor, 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.
Right - Artist's impression of the new, yet to open La Samaritaine in Paris
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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There will be life after COVID 19, but it’s guesswork to how much and how quickly it resumes to pre-virus levels. American designer, Tom Ford, told WWD today, “In China, for example, with our cosmetics, we’ve completely recovered. We’re back to 100 percent. And our ready-to-wear and accessories, which was down about 95 percent, it’s now back up to 50 percent.”
That is in just over a month. The Chinese saw a spike in infections on 12th February.
Tom Ford has just 4 own brand stores in China. His beauty brand, in partnership with Estée Lauder, will be available more widely. Tom Ford Beauty was projected to turn over $1 billion in global sales by 2020.
Admittedly, the person who can afford Tom Ford might be slightly more immune to a downturn than others, but it’s more the attitude and feel good factored needed to buy an expensive handbag that is interesting here. It’s a strong bounce back and one many other luxury brands will be looking and hoping for.
Tom Ford, while a big name, is relatively mid-sized in terms of luxury with very select (limited) distribution. The brand generates an estimated $500 million in yearly revenues for its men's and women's ready-to-wear and accessorises. But, he will be sat alongside, in retail terms, the best of the world’s brands and designers, so it shows the Chinese shopper is back out.
Italy, the worst-affected country in Europe, is starting to see the number of new cases of Coronavirus cases start to fall. The peak in the country was four days ago, on March 21, when 6,557 new cases of the virus were reported. Two days later the number was down to 4,789 and, although yesterday the number increased again to 5,249, that is still 20% below the peak.
A week after South Korea hit its peak, which was much lower than major European countries at just 851 cases on March 3, the number of new recorded cases had dropped by 87%.
In Germany, the peak number of new cases was on March 21 at 4,528 cases. Yesterday, 24th March, the number of new cases was down to 3,935, a drop of 17%.
While we have to take Chinese virus numbers with a pinch of salt, it might not be as bad as we think for the fashion business after all. A strong domestic consumer bounceback will be the catalyst the fashion industry needs.
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Burberry announces Riccardo Tisci as Chief Creative Officer effective 12 March 2018.
Well, the cat is out of the bag and Christopher Bailey’s replacement isn’t Phoebe or Kim, but Riccardo. Something of a Creative Director curve ball, he was speculated to go to Versace, this is an exciting signing - how Premiership?! - because he could take Burberry in any direction.
Left - A sign of things to come? Tisci's Burberry Cromwellian warts 'n' all portrait
While it was all about luxury sportswear at Givenchy, during his 12 years there, his style was more American, masculine and darker in feeling, but it all started to look a bit done when Vetements arrived with its dress-down aesthetic. I think Givenchy wanted to make the brand more feminine and focussed on women’s accessorises. While he grew the ready-to-wear he seemed to neglect the beauty and accessory side.
Burberry is more slanted towards ready-to-wear, so this could be good, but I thought they wanted to grow their accessorises business?
So, Burberry opts for an Italian. Tisci’s studied and worked in Britain before, he used to be a branch manager of Monsoon, which I love, so he’ll have some idea on Britishness and also bring a fresh perspective to it. Out go the Rottweilers and sharks, and in come Corgis, Greyhounds and Beagles maybe?!
I think ‘See Now, Buy Now’, will be shelved and his first, proper full collection will be for SS19. It’ll be interesting to see whether he takes on everything like Bailey did. If the Creative Director does the stores, windows, campaigns, beauty, everything… you get a feel, faster, of how the brand is changing and its new direction. He'll give menswear as much focus as womenswear which is good.
Burberry has a big, new store opening in Knightsbridge, so it’ll be interesting to see if Tisci has time to have any input and make changes before that opens.
Burberry is Britain’s biggest luxury brand. It’s strongest market is arguably the Chinese, at home and abroad. Keeping these consumers happy, buying and increasing will be the main future goal of any Creative Director. But, if he can please the fashion crowd, and instil much needed excitement, then it’ll keep the business growing and the shareholders happy. I think his window to make this happen will be much smaller at Burberry than at Givenchy and they’ll want to see positive change and fast. Will an Italian do it better?!
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