China market becomes a “lifeline” for international luxury brands as they further increase their presence

Italian luxury down jacket brand Moncler’s recently released earnings data shows that the strong performance of the Chinese market has become the key to the resumption of growth in the fourth quarter, with sales in mainland China growing at a rate of more than 60% to drive Moncler’s fourth-quarter sales growth of 8%. In addition to Moncler, the latest financial results of luxury brands such as Canada Goose, Gucci, Coach, Prada, Hermes and LV all show a significant boost from the recovery in China. With spending returning in the wake of the outbound travel hiatus, the luxury market has seen a clear rebound and luxury brands have increased their investment in the Chinese market.

Moncler achieves double-digit sales growth in Mainland China last year

Moncler’s 2020 financial report for the year ended 31 December 2020 showed that Moncler’s sales in 2020 fell by 11% year-on-year (at constant exchange rates, the same below), with the first half of the year being more affected by the COVID-19 pandemic and the second half gradually achieving a recovery, especially in the fourth quarter when sales achieved a year-on-year increase of 8%, and this was largely due to soaring sales in China, offsetting the decline in sales in Europe and the impact of the epidemic.

According to financial data released by Moncler, it achieved a 2% increase in sales in Asia in 2020, the only region in the world where Moncler achieved growth. The Chinese mainland market led the region with double-digit growth, especially in the fourth quarter, followed by South Korea and Japan. The winter sales in the fourth quarter, October-December, are particularly important for the down jacket brand. According to financial reports, sales in Asia rose by a whopping 26% in the fourth quarter, and Moncler COO Roberto Eggs told analysts on a conference call that sales in mainland China rose by more than 60% in the fourth quarter.

Roberto Eggs said that sales in China were also better than expected in February 2021, with triple-digit growth, including the key retail period of the Lunar New Year holiday. Going forward Moncler will continue to expand its presence in China and make China a key focus, for example by launching a dedicated website in the country, opening flash shops in key locations in malls and planning to open eight new shops in Asia Pacific region in 2021.

China is a key driver of recovery for luxury brands

In addition to Moncler, recent financial results released by Canadian down jacket brand Canada Goose showed that net sales rose 4.8% in the three months to 27 December 2020, achieving sales growth for the first time since the pandemic, with direct net sales in the mainland China market up 41.7%.

The current Chinese market has become an important driver of performance recovery for many luxury brands. on 19 February, Hermès released its financial report for 2020, showing a 16% increase in sales in the fourth quarter of 2020, with the growth largely driven by a 38.9% increase in the Asian market. on 4 February, Coach’s parent company, Tapestry Group, released its fiscal 2021 second-quarter results showed that Tapestry Group net sales declined by 7% during the reporting period, while revenues in China grew by more than 30% year-on-year. Gucci’s parent company, Kering Group, also reported financial results in February showing that Gucci’s full-year 2020 sales declined by 22.7%, with a recovery in the second half of the year, mainly due to continued growth in local consumer spending, particularly in mainland China market.

Also, financial data released by PRADA Group in January also showed that sales in the PRADA Group retail channel declined by an average of approximately 6% in the second half of 2020, while retail sales in China saw a 52% increase. Italian luxury brand Valentino’s sales fell by 27% year-on-year last year due to the epidemic, while Valentino’s retail sales in mainland China grew by 44%. in the fourth quarter of 2020 financial results, LVMH Group, on the other hand, said that the Asian market grew strongly.

Luxury brands further increase their presence in China

According to BCG, in 2012, China’s individual luxury goods consumption market accounted for just 12% of the world, reaching 872 billion RMB yuan (measured at the exchange rate at the time) or 33% by 2018. 2020 saw the Chinese market take the lead in the recovery of the global luxury goods industry, which was hit by the pandemic. According to Jefferies research, China’s share of global personal luxury consumption has surged since the pandemic, jumping from 38 to 39 percent to 80 to 85 percent in 2019.

Data from global consultancy Bain Company also shows that China is the only regional luxury market to grow positively in 2020, bucking the trend of 45% year-on-year growth, and that local consumption is growing across all sales channels, product categories, price segments and across all age groups. Jefferies and Bain also believe that Asian consumers will account for 70% of global luxury spending by 2025 and say that “future growth will be driven more than ever by the Chinese market.”

The impact of the pandemic has halted outbound travel, brought back consumer demand for luxury goods purchased overseas, and seen rapid growth in Hainan’s duty-free outlying islands. Under the influence of multiple factors, although luxury brands such as LV, Chanel and Dior have carried out several rounds of price increases, there are still multiple queues for purchases in many parts of the country, especially after the news of price increases. Industry insiders pointed out that the multi-frequent price hikes have also become one of the means for luxury brands to ease the impact of the pandemic, and the rebound of the Chinese market has become the key for luxury brands to make up for the losses in the global market.

At the same time, luxury brands are further increasing their presence in the Chinese market. In addition to Moncler, Canada Goose has already opened four new shops in China in 2020 and launched a co-branded collection with Chinese designers for the first time in January 2021. In order to cater to Chinese consumers, more and more brands are also accelerating their online channels and are stationed on domestic e-commerce platforms. In 2020, luxury brands such as Prada, Balenciaga, Chopard, Gucci and Dior have all concentrated on the Tmall platform, and some of them have opened marketing numbers such as Xiaohongshu and Douyin, while more and more debut shows of new collections are being held in China.

Source: BJ News

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