MANILA, Philippines ? There?s much room for growth in e-commerce in Asia that could advance the growth of luxury brands in the region, a recent study says.
According to a MasterCard-commissioned report conducted with the ESSEC Business School in Paris, ?The Luxury Industry: Lessons Learnt from Past Crises,? luxury brands should take advantage of the economic slump to evolve and diversify their distribution channels.
China?s affluent alone is expected to spend $116.9 billion on luxury goods by 2015, according to a separate MasterCard study, while even a much smaller market like the Philippines has potential spending of up to $6.13 billion.
The MasterCard-ESSEC report, presented at the start of the just-concluded MasterCard Luxury Week 2009 in Hong Kong, focused only on Asia and Europe and was conducted to determine ?what we have learned from the previous crises so we can prepare for the next one,? according to Dr. Michel Phan, director of MasterCard-ESSEC Luxury Brand Management Executive Program and LVMH chaired professor at the ESSEC Business School in Paris.
It used as timelines the oil crises in ?73 and ?79; the stock market crash in ?87; ?92?s so-called ?Black Wednesday? crash; ?97?s Asian financial crisis and the SARS crisis in 2003.
The year 1987 saw the birth of luxury as it?s known today, with Bernard Arnault, now chair of LVMH, taking advantage of the stock market crash to merge Louis Vuitton and Moët Hennessy. But in ?92, LVMH suffered a severe blow and the Gucci Group nearly went bankrupt. That same period had little effect on Richemont Group and Hermès.
Phan underscored that the past crises had different impacts on different groups at different times. For instance, LVMH?s revenue was badly affected by the Asian financial crisis, though along with Richemont, it would only moderately suffer from the SARS scare.
The current slump also has moderate impact on LVMH and Gucci, respectively losing by 7 percent and 3.4 percent compared to the previous period. In contrast, Hermès and Richemont even posted respective growths of over 7 percent and at least 2 percent from 2008-09.
Notably, luxury conglomerates adopted several strategies to offset the effect of the downturn, according to Phan. These include new store openings or refurbishing existing stores in key areas; the launch of new and special products to generate market interest; cost-cutting; and diversifying into complementary businesses or buying more shares to gain control of their current businesses, just as Arnault?s move in ?87.
This is a time for brands to innovate and offer ?more personalized? luxury goods, noted Phan, and discard the current ?me-too? trend or copying existing products from the competition. ?Today, without the logo, you can?t tell what brand it is. They all look the same,? he said.
A major growth area that should be looked into is online retail, he added, and luxury companies, though belatedly, seem to be catching up to the trend.
M-commerce (or mobile commerce) now used in high-tech nations like Japan, where consumers can scan QR (Quick Response) codes of products with their phones, enabling them to purchase while on the go, will also play a big role in the future of luxury retail.
The report noted Gucci and Ralph Lauren now use QR codes in Japan, while Chanel and Dior have iPhone applications that contain their runway shows and campaign clips.
Diversifying into new markets is also an option that?s being adopted by some labels. Foreseeing the US downturn, Hong Kong?s hometown design superstar Dorian Ho began to shift his attention to the East, particularly China and the Middle East, two years ago.
A Boston-educated marketing man before he became a designer, Ho?s luxurious clothes are sold in Hong Kong?s Lane Crawford, Barneys Japan and Saks Fifth Avenue in New York, where he also has a showroom.
?The Middle East is where I see a future for my label,? Ho said, noting the concessions he makes in his designs in deference to the Muslim culture. ?I know a lot of the big global brands refuse to make adjustments [in the way they do business]. But I think this is how it should be.? His move proved to have softened the blow of the financial crisis on his bottom line.
Big luxury markets like North America and Japan will contract by 10-15 percent, according to MasterCard?s forecast for the next 12 months (beginning in July). ?If a brand has high concentration in the US, it will be very bad,? Phan said. Russia and Europe will also be on the negative, from -2 to -8 percent.
In contrast, Brazil, the Middle East, India and China will post single-digit growths, with the latter expected to grow its luxury market share by as much as 7 percent. ?It?s only single-digit but it?s growth,? Phan emphasized.
?Asia?s leading the world out of the slow down in economy,? said Simon Locke, managing director of IMG Fashion Asia-Pacific, MasterCard?s partner in the annual Luxury Week, a week-long series of designer fashion shows aimed not at industry buyers but at consumers, who get to purchase the clothes immediately after the show.
This year, it presented the Fall-Winter 2009 collections of about a dozen labels, including Shanghai Tang, Derek Lam, Thakoon, Betsey Johnson, La Perla, Tod?s, Ho, and even Escada, whose Europe headquarters declared protection from bankruptcy a few days prior.
The timing of Luxury Week seems to work well for the brands, including Ho, who said, quite amused: ?People seem to spend more in the cold weather.?