After two weeks in the mountains of Wyoming, I come home and what do I find? Not only is Mulberry without a CEO (and still without a designer), but all that conventional wisdom about the super-duper high-speed growth of the Chinese luxury market (shock! trauma!) slowing down may have been wrong. Or not wrong, exactly, but slightly misguided.
There was a terrific piece in the FT’s Watch & Jewellery special report over the weekend pointing out that while sales in the mainland may be slowing, sales to Chinese OVERALL (ie, outside China on nice trips that involve shopping) are not. Here is my favourite quote in the story, from Erwan Rambourg, HSBC’s Hong Kong-based global co-head of consumer and retail research:
“People assume luxury equals China, but it doesn’t – luxury equals Chinese. China accounts for 8-10 per cent of sales through the luxury sector, whereas Chinese account for around 35 per cent.”
See where I am going with this? See the picture above, which was taken in Paris?
Meanwhile, Hans-Dietrich Lahrs, CEO of Hugo Boss, told the FT that “15-20 per cent of sales in big cities around the world come from Chinese shoppers”– though China itself accounts for only a third of the 15 per cent of annual sales that come from Asia in total, and he was considering “a new service that would allow Chinese tourists to shop online while overseas and have the items shipped back to China”.
All of which suggests that traditional methods of calculating markets – by sales per geographic region – are increasingly meaningless in a luxury market where consumers 1) travel and 2) are very good at searching the web to find out where they should buy things to get the best price, and then going to the product. Especially when brands themselves invest in flagship stores in cities as much as marketing vehicles as actual sales vectors (this is especially the case in countries such as Brazil, where a store is effectively an ad to seduce consumers into buying stuff outside the country, or China, as per above).
There’s a reason the Savile Row association has been lobbying the UK government to relax Chinese visa restrictions – they fear loss of sales to travelling Chinese tourists –and there’s no question that much of Bond Street foot traffic is not native business. There’s a reason so many luxury brands now employ Chinese speakers in their flagships in London and Paris and New York. So given that, is it really accurate, to call it, for example, the “UK market”, when much of that market is made up of non-UK citizens? Is it fair to say Chinese are buying less in China if they are buying more abroad? I wonder.
Indeed, it seems to me (with that nice perspective vacation brings) that thataway distortion and confusion lies; the capex/return ratio is not quite as direct as it used to be. It may look more like the etail/return ratio, where information is gathered online and sales made in store, or vice versa.
How you express that in a quarterly report, of course, is another question.