Country: Europe

Since mid-2014, Euro’s sharp devaluation, currency volatility and political dynamics is resulting in dwindling sales for luxury brands ensuing in many of them to increase prices in Europe to balance revenues. On the other hand, international luxury brands are fast adjusting prices to boost sales in China to garner bigger share in the expanding market, as fast fashion brands massively expand through e-commerce. 

Oflate, the luxury industry is looking for ways to address a problem that has emerged from one of their most important growth market, i.e. China. A weak euro and high Chinese tariffs on luxury goods have combined to create a large gap in the cost of luxury goods inside and outside China. Several European luxury brands have adjusted prices globally to offset this price differentiation. According to industry experts, brands are trying to balance the price difference in the European and Asian markets and boost sales by raising prices in Europe and lowering prices in Asia, in order to cool the international buying services market. It is expected that luxury brands will offer similar discounts in the near future and some brands have already announced that they will cut prices. These include luxury brands such as Chanel, Prada, Burberry, etc. 

FACTORS LEADING TO LUXURY BRANDS ADJUSTING PRICES

Weak Euro

Political scenario

Fast  fashion brands expanding rapidly through e-commerce

Currency volatility

In March, Chanel announced that it will increase prices in Europe by 20 per cent and decrease them in China by a similar amount, to discourage the ‘daigou’ grey market shopping agents, who buy at lower prices overseas and resell to consumers in China. This shift was also to align prices in anticipation of the global e-commerce push by fast fashion brands. Following Chanel’s example, Prada lowered prices in China, but kept the European prices same due to weak demand from the market. Similarly, Burberry, Richemont’s Cartier and Patek Philippe have moved to harmonise their prices globally following the rise of US dollars, weak Euro and the surge in Swiss Franc. Still, a few brands such as Kering have taken a ‘wait and see’ approach, while LVMH has categorically stated that unified exchange rates (consistent pricing across markets) is not a strategy that the company advocates as it limits flexibility for luxury brands. 

Amidst the global pricing shifts, political scenario has also potentially changed the dynamics for many luxury brands. Amongst this is the recent announcement by China’s State Council, declaring a crackdown on grey market imports by ordering more transparent and consistent tax collection, while increasing seizures of counterfeit products. Further, the Council has requested a reduction in import duties by July in order to stimulate local demand that has been weak. 

According to industry experts, brands are trying to balance the price difference in the European and Asian markets and boost sales by raising prices in Europe and lowering prices in Asia, in order to cool the international buying services market. Amidst the global pricing shifts, political scenario has also potentially changed the dynamics for many luxury brands.

Amongst this is the recent announcement by China’s State Council, declaring a crackdown on grey market imports by ordering more transparent and consistent tax collection, while increasing seizures of counterfeit products.

Due to the changing political scenario, grey market trading would certainly be less attractive but this alone is unlikely to change the behaviour of Chinese consumers to shop abroad as factors that have long driven overseas purchases such as greater prestige, better service and product selection, privacy and anonymity, lower taxes are as important as the prices. Also, many brands have underestimated the Chinese renminbi (RMB), assuming that it will remain resolutely stable. Currently, China has immense assets at its disposal, but with the housing bubble, a slowing economy and rumours of increasing capital flight, absolute stability of its currency cannot be guaranteed. If the devaluation of the RMB happens, then it could have a tremendous negative impact on luxury brands. 

In the meanwhile, a weak euro has resulted in a significant high in the price difference between the same goods in Europe and China as certain luxury goods are 60 per cent more expensive in China than they were in Europe. According to Global Blue, a Tourism Shopping Refund Company in Switzerland, sales in Europe due to Chinese tourists have soared in recent months. Also, considering the US market, the prices are on average 30 per cent higher than Europe, but the country continues to attract Chinese travellers and resellers. 

The brands that have chosen a ‘wait and see’ approach will benefit the most as the economic factors seem to be continuously shifting. Currently, the weak US market has led the Federal Reserve to postpone increasing lending rates, leading to a rapid and significant downward movement for the US dollar. After reaching a high of 1.04 in March 2015, the dollar in recent weeks lost almost 9 per cent against the euro, reaching a low of 1.14 in May 2015. Likewise, the euro is not expected to strengthen significantly given the current monetary policy of the European Central Bank. It remains to be seen how international economic dynamics and Chinese policies evolve in the short- to medium-term and what their impact will be on the luxury industry. As currencies are prone to volatility, so strategy-based on currency fluctuations can prove risky. Brands that choose to ‘wait and see’ are probably in the best position to be resilient.

Over the years, menswear is seeing a major surge as the attitude of male consumers continue to change towards fashion, which is no longer restricted to the stereotypical metrosexual men. For the first time ever, menswear is outpacing womenswear and is growing at a faster rate, as more and more men focus on personal appearances pushed by a large disposable income. According to Euromonitor International, the global spending on menswear grew 4.5 per cent to US $ 440 billion in 2014, while the sale of women’s fashion, which is a larger market, reached US $ 662 billion, growing at a slower rate of 3.7 per cent.

Being termed as ‘The Global Renaissance’, Euromonitor has revealed that over the next five years, menswear is expected to contribute US $ 40 billion to the global apparel market, reaching sales of US $ 480 billion at constant prices by 2019. “Globally, men’s annual disposable income is still 50 per cent higher than women’s,” reveals Magdalena Kondej, Head of Apparel and Footwear Research. These projections are consistent with other studies and reports such as IBISWorld, which claims that menswear is the fastest growing online sales category since 2010. According to IBISWorld, the projections for the next five years have menswear topping the list again and this boom is not expected to slowdown anytime soon.

Historically, fashion has always been associated with womenswear, but over the years with rise of popular television series, internet and celebrity endorsements, men’s fashion has officially gone mainstream. In fact, the rise of internet has played a crucial role in promoting menswear as consumer research firm Mintel reports that one-third of men shop online for clothes, which supports and explains the rise of menswear. Apart from internet, the rapid economic growth of emerging markets like China has been one of the most important drivers of growth in men’s spending. “Consumers in Emerging markets, especially in China are the primary (growth) factors, followed by more attention by brands in terms of product and offers,” informs Luca Solca, Luxury Analyst, Exane BNP Paribas. Supporting the thought further, the Euromonitor report suggests that though Western markets will spend the most on clothing but the future growth will be driven by Asia Pacific; and in some of these key markets, menswear has already overtaken the more traditional female-oriented fashion. “Men are the largest demographic in China’s apparel market, contributing US $ 73.3 billion in sales,” asserts Richard Cohen, CEO of Trinity Limited – the high-end menswear group whose brands include D’Urban, Intermezzo and Savile Row’s Gieves & Hawkes.

Top trends for Menswear (A/W 2015)

• Wool coats with soft shoulders to give it a slouchy and oversized vibe 

• Grey the ‘it’ colour, followed by green – forest, dark, military and mint green

• Layering up knits

• Square patterns and patches

• Oversized pockets

• Shearling, in both dyed and natural shades will get prominence

•  Baggy trousers – high-waisted with far looser cuts 

•   One-piece suit

Tapping this potential market, Richemont is making a big push into menswear in particular, with significant investment in Dunhill. “Men are in general becoming more interested in investing in themselves whether it is a new piece of technology, an item of clothing or a grooming product. Up until now Dunhill has been the sleeping giant. The brand has huge potential – we have heritage, expertise and know-how. And we now have John Ray, the ideal Creative Director for the brand, renewed focus and new product categories,” states Fabrizio Cardinali, Chief Executive, Dunhill. Even traditional brands that focused on womenswear have now started opening separate menswear stores, whereas on the other hand department stores have started revamping their menswear section. A number of luxury and mass fashion brands such as Burberry, ZARA, etc. have opened standalone stores to tap into this growing market.

Recently, luxury labels like Coach have also introduced full-fledged men’s collection and for the first time in July 2015, New York will hold its first fashion week dedicated to menswear joining the ranks of London, Paris and Milan. This only goes to prove that this trend is not expected to fade away soon! “Menswear presents a great opportunity for fashion brands looking to diversify their product portfolios and reach out to new consumers. The more effectively brands are able to harness wealth and unique consumption cultures of male consumers, the more successful they will be,” states Magdalena.

Further, luxury brands such as Hermès, Lanvin, Gucci, Ralph Lauren, Dolce & Gabbana, Prada, etc. have also expanded their menswear offerings and are dedicating standalone stores to menswear. In April, Prada, which predominantly is a women’s-focused business has announced that over the next 3-5 years it hopes to double its menswear sale to US $ 2 billion and would add 50 more dedicated men’s shop to its existing 30. Others are following suit such as Kering and LVMH who are making significant investments in their respective luxury menswear brands Brioni and Berluti.

Various brands and retailers alike are thrusting towards menswear which was initially considered as the least profitable segment of the fashion industry. In recent years, the consumer demand for incessant newness and constant feeding of internet has led to menswear becoming a lifestyle rather than a trend.