mainland china & hong kong luxury goods market - get ready ...€¦ · mainland china/hong kong...
TRANSCRIPT
June 2020
Mainland China/Hong Kong Luxury Goods Market -“Get ready for the next wave”
Understand the Importance and
Uniqueness
Mainland China/Hong Kong Luxury Goods Market Opportunities
2
Luxury industry and its global value chain is impacted severely by world-wide spread of COVID-19 on both demand and supply sides
>10,0005,000-1,0000
Existing infected population as of 10 April, 2020:
Major markets with global rank # of size
Impact on demand by sector
Made in Italy, France, Spain, Germany, UK & Swiss
<5,000
Made in Poland & Romania
Made in Serbia & Slovenia
Made in USA
Made in China
Perfumes & Cosmetics
Fashion & Leather goods
Wines & Spirits Low Medium High
Watches & Jewellery Low Medium High
Low Medium High
Low Medium High
Pandemic distribution across luxury global supply chain
Made in Japan
#1
#2 #3 #4
Source: LVMH 2019 Management Report, Public data3
With rising uncertainties, luxury brands now face various immediate challenges globally on how to respond quickly on business recovery
76 84 88 98116 122 122 120 128
139 150161 159 147
167186
207 212 219245 244 254 260
281
Global Personal Luxury Goods Market Size (Billion Euro)
Luxury brands penetrate mass market
Financial Crisis
-4.4%
6.0%
SARS Outbreak
-1.6%
China dominate global luxury goods market growth
4% 35%Contribution of Chinese consumer to global sales
Reduction of international travel flow from China 20% 80%
The impact of the Covid-19 outbreak on the luxury goods sector is more severe than that of the SARS epidemic because:
• The sector is much more exposed to China
• Restriction on international travel might last for longer period
Frozen travel retail business
Shortage in supply and discontinued production
Uncertain and weakening demand for coming new seasons
High offline operating expense with declining consumer traffic
Impact of COVID-19 is more severe with immediate challenges
Historical trend indicates high vulnerability in downturns
4Source: Bain 2019 Luxury Goods Worldwide Market Study, Public Data; Bain Luxury after COVID-19: Changed for the good, Mar 2020
COVID-19 Outbreak
?
183 to 239 (decline of 15% to 35%)
Hong Kong luxury retail suffer great loss due to the protest in 2019 and recent COVID-19 with steep plunge of inbound travelers
5
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
# of inbound visitors Jewellery, watches and clocks, and valuable giftsClothing, footwear and allied products Medicines and cosmetics Alcoholic drinks and tobacco
Announcement of extradition law
Mass street protest began on June 9
Shut down airport on August 9
Travel ban for Covid-19
(Retail Sales, M HKD) (# of Visitors, Thousand)
Inbound travelers declined sharply due to protest and epidemic
Alcoholic drinks
Watches & Jewellery
Cosmetics & Medicine
Clothing and Footwear
-39%
-26%
-27%
-16%
-69%
-63%
-52%
-73%
19 2H vs. 18 2H 20 Feb vs. Jan
-39% -94%
Sales in all luxury sectors plunged
Source: Hong Kong Tourism Board, HKSAR Census and Statistics Department, Public Data
Tourist
With shrinking demand from travellers, brands might need to rethink their store network strategy to stay profitable with high rental expenses
6
Mainland Others
Brands need to pay attention to network strategy in short run
Mainland visitors originally contributed large proportion of luxury sales in Hong Kong. But now they shift spending to mainland under various incentives:• Lower consumption tax• Prevalent ecommerce• Weakened Chinese yuan
As current no. of luxury brands stores might be too excessive to fulfil local demand,several global and local leading brands announced to close expensive stores to lower cost bases starting form 2019 2H
However, local tax incentive and position as world financial centre will continue to make Hong Kong a worthy place for short to medium term investment.
328,924339,454
359,780
380,503 382,046
2015 2016 2017 2018 2019
However, local consumption needs seem less impacted, as Per Capita GDP still increased slightly in 2019Luxury brands will be more dependent on local population to drive retail sales
There is shift in spending towards local consumption in Hong Kong
High rental prices severely impair the store profitability
78% travellers are
from mainland China in 18-19
312
471
1,251
1,447
1,478
1,714
2,250
2,745
×2.1
×5.8
×8.8
(Annual rental in USD per square foot on Jun. 2019)
Causeway Bay
Upper 5th Avenue
New Bond Street
Avenue des Champs-Elysees
Via Montenapoleone
Ginza
Wangfujing
Orchard Road
Retail rental prices remain the highest in Hong Kong among popular streets for luxury shopping of top metropolis
Source: Hong Kong Tourism Board, HKSAR Census and Statistics Department, statists, Public Data
+0.4%
(Per Capita GDP of HK, HKD)
• Prada
• Louis Vuitton
• Valentino
• Omega
• Tiffany & Co.
• Longines
• Rado
• Chow Tai Fook Jewellery
However, Mainland China, the most prosperous market for most brands, is already on its way to recover with fast pace
China starts to recover while others are still suffering from COVID-19
country to recover from COVID-191st
16.3% PMI BP growth since recovery
PMI Change
50.0%35.7%
52.0%
Jan Feb Mar
Before Covid-19 In Covid-19 Since Recovery
Strong confidence of economy recovery in China
fashion industry manufacturers98.6%have returned to work by end of March
Nearly 50%show positive attitude in economy recovery*
Chinese consumers
% of Chinese consumers’ attitude in economy recovery
Neutral**
Postive**
Negative**
Daily New Cases
1% 6%
55% 45%
44% 49%
0%
20%
40%
60%
80%
100%
21-24 Feb 20-23 Mar
Online and offline channels accelerate market recovery
95.8%opened and took more value-added actions to attract consumers
shopping malls in China
Tissot and Rado extend guarantee period
Millionsare attracted by livestream of CHANEL and Giorgio Armani
of Chinese consumers
Multiple online platforms such as WeChat, Secoo.com and TMALL
OFFLINE:
ONLINE:
Source: National Bureau of Statistics, McKinsey “M&S COVID-19 China Consumer Pulse Survey”, Public Data; “DING-XIANG Doctor”, Public DataRemark: *Totally 1250 Chinese including those from Hubei Province were interviewed
** Positive means 2-3 months influence on economy followed by the same or higher growth than before, Conservative means 6-12 months influence on economy followed by economic stagnation or slower growth, Negative means Long-term influence on economy along with recession
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Besides 1.4 billion population, China has a younger, wealthier and more digital empowered group of luxury consumers
Young generation and wealth are the main growth drivers
They show different values and attitude
Heavily social and trend dependent
Digital and new tech savvy
Source: BCG 2019 True-Luxury Consumers / ALTAGAMMA, McKinsey China Luxury Report 2019, Morgan Stanley Research, Credit Suisse Global Wealth Databook 2019
Individualised and self-expression
Top luxury brands now have huge dependency on Chinese consumers
32%
35%
37%
37%
44%
42%
10%
17%
16%
17%
11%
17%
LVMH
Kering
Prada
Hermes
Richemont
Burberry
Contribution to global sales by Chinese consumer
Contribute to Mainland China sales by Chinese consumer
8
7.0%China
China also has more share of Top 10% wealth population in the world
6.6%World
China luxury consumers are much younger
World
Millennials
Gen-Z
China
Post 80’s
Post 90’s
Members of top 10%
global wealth as % of total
population in 2019
Digitalisation shifts consumer behaviour in China while new Omni-channel operating model is critical for future success
Embrace irresistible KOL and livestream trend in China
Redefine supply chain network and digitalize value chain
No. of new livestream merchants on TMALL in Feb 2020 is ×8 the amount of Jan 2020
MAKE UP FOR EVER’s 1st week livestream on Tik Tok realised over 30 ROI in Mar 2020
LV pioneered livestream on Red with 15K participants to start with
While beauty products has proven its success, other segments still need to think more on how to find proper platform and KOL strategy to balance brand identify and traffic
Source: Public Data 9
Value chain restructuring / supply chain network reinvention are cast in the spotlights
Aware
Seamless O2O
Experience
Rising demand in lower tier cities now shifts business centre of gravity in China
Customers expect higher delivery service level and seamless Omni-channel experiences
Relocation of business activities involves integrated transformation covering finance, tax, operations, labor, legal etc. Sophisticated planning is critical to the success
Deepen eCommerce and enable O2O customer engagement
Numbers of luxury brands across sectors go live their flagship stores on TMALL and JD.com during Q1 2020 such as Alexanderwang, Cartier, Delvaus, Giorgio Armani, Kenzo, and Prada
In 2019, GMV of luxury goods on TMALL increased by 70%, while overall luxury goods market size in mainland China increased by 30%
70%
30%
TMALL Overall
LV launched new collection via virtual pop-up stores based on WeChat mini-apps this Mar. They can also identify and follow up with more potential buyers
With supportive moves from government, local consumption behaviour during Labour Holiday indicate strong signal of retail market recovery
10
Government initiate shopping festival to unleash consumption power
TAIWAN
HONG KONGMACAU
Shanghai: 67.2%
Guangzhou: 53.1%
Shenzhen: 51.9%
Wuhan: 39.9%Hangzhou: 66.9%
Xi’an: 52.9%
Chengdu: 58.4%
Changsha: 68.7%Xiamen: 58.1%
Shenyang: 62.8%
Beijing: 46.7%
Nanjing: 70.1%
• Local government enforced a combination of measure to encourage consumption during Labour Holidays with joint participation of eCommerce giants, O2O platforms, shopping malls and brands
Higher traffic and consumption during Labour Holiday speed up the recovery of both online and offline retail market
• Average recovery rate in China during Labour Holiday hit 59.3% with 18.6k average daily traffic per shopping mall (× 4.2 times of daily traffic in Feb)
• Shopping malls in Yangtze River Delta experienced the highest traffic rebound
Sales of key retail companies increased by 32.1%compared with Qingming Holidays
Average Shopping Malls Traffic Recovery Rate in Key Cities
Online sales also increase by 36.3% compared with last year
Travel retail channel in both airport and city centre launched promotion to improve sales of duty free products
Sales recovery of department stores in Beijing increased from 34.4% during epidemic to 64.7% during labour holiday under shopping incentives
Holiday effect
Shopping vouchers
Onlinepromotion
• More in-coming domestic travellers
• Social needs for shopping, dinning and entertainment
• Vouchers worth 19 billion RMB were issued in 28 provinces
• City-exclusive live stream for Wuhan, Shanghai, etc.
Source: Ministry of Commerce of the People’s Republic of China, WINNER Tech, Public Data
How to get ready for the next wave of China luxury goods market growth by seizing the right moments as of now
Short term: Optimise existing value chain
Capitalise inventory and Spring/Summer new collection
Optimise Ops & tax & legal efficiency across value chain and partners
2020 Q2
Rationalise Capital Expenditure (CAPEX) and Operating Expense (OPEX) to be highly strategic focused
Digitalise customer engagement and rationalise product / service offerings
2021-2022
Long term: Realise new value proposition
Redesign and implement future Omni-channel model for China2020 Second Half
Mid term: Boost China market recovery
Explore target-group consumer shopping behaviour changes
Optimise eCommerce channels and capability on digital marketing
Revitalise tax-efficient supply chain and in-country distribution
Reimagine value chain transformation to be customer-centric and growth driven
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Team Contacts
12
Michael [email protected] Asia / China & Hong Kong Consumer Markets Leader Partner
Rebecca [email protected] Kong Consumer MarketsPartner, Legal Services
Jennifer [email protected] China Consumer Markets Leader Partner, Risk Assurance
Steven [email protected] & Supply ChainPartner, Consulting
Jaelyn [email protected] & Customer Partner, Consulting
Jane [email protected] China Consumer MarketsPartner, Tax
Jenny [email protected] Hong Kong Consumer MarketsPartner, Tax
Thank you!
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