Nicla Di Palma, equity analyst at Brewin Dolphin, discusses a revival of consumer interest in the luxury sector ahead of London Fashion Week
After a lacklustre 2016, when the personal goods luxury market declined by 1%, 2017 and 2018 so far has seen a massive revival of the “personal goods” luxury sector (apparel, leather goods, jewellery etc). This has been mostly due to newly found consumer confidence in China, helped by quickly rising house prices and fast growth in employment.
In addition to favourable macroeconomic conditions, we feel designers at top end brands (Louis Vuitton, Gucci, etc) have become more daring and streetwear-inspired which has endeared them to millennial consumers. Burberry’s new designer Riccardo Tisci will make his debut at London Fashion Week and we expect him to follow the lead of Alessandro Michele (Gucci’s designer) and Nicolas Ghesquière (Louis Vuitton’s) in presenting new and bolder collections which should appeal to the younger consumer. Interestingly, while perceived wisdom would say that affordable luxury should grow faster than higher end luxury, in reality last year has seen the two segments growing at the same rate.
High end luxury has also been very successful at engaging consumers online via social media platforms – on Instagram, Chanel has nearly 30m followers, Louis Vuitton 27m, but Michael Kors (which is a typical representative of affordable luxury) only 12m. On the other hand, while online sales are fast growing in luxury, they remain a relatively low percentage of sales (8% of total vs for example 20% for general retail apparel in the US). Often, purchasing a luxury item (bag, dress etc) is an experience in itself which obviously would be lost in an online environment.
We feel that, in luxury as in general in apparel retail, the consumer is looking for either differentiation or bargain basement prices – this explains the sale success of Ted Baker, Zara on one hand and Primark on the other. This leaves the more undifferentiated retailers in a vulnerable position.