Luxury & Fashion Biz News: September 23, 2011 (Second Hand Bags are Big Business, Middle Class Shoppers are a Game Changer, and Twitter Loves Burberry)
1.) Used Handbags in Hong Kong Means Big Business:
“Byron Yiu once eked out a living by hawking sunglasses at a Hong Kong street stall, but has made his fortune by turning traditional shopping habits around and re-selling rich women’s luxury handbags . . . ‘It has become a culture in Hong Kong, the ladies will sell the old bag when they get a new one. We are depending on this very small group of “tai tais” to sell us the handbags they want to get rid of, and they are the main supply source to other ladies’ (said You) . . . From a humble start-up a decade ago with a 100-square-foot (9-square-metre) shop, the pioneering retailer now has 14 outlets, with an eye to further expanding to meet mainland China’s booming demand for luxury goods.”
The article goes on to say that ten years ago, such a business model didn’t exist in Hong Kong — that women either threw out their not-so-trendy anymore bags or kept them in storage in their closets (never to be seen in public again), but with a rising demand for designer name brands as social signifiers, plus a growing Asian middle class that saves up its money so it can splurge on the glitziest of Western designer brands (driving demand ever upwards and outwards as the uber-wealthy abandon items that are now seen as too mainstream but which are eagerly snapped-up by image-conscious working consumers), second-hand luxury has become a booming first-class business.
*NOTE 1: “Middle-class people are getting the Louis Vuitton bags, and the people who used to get them are now looking for something else,” said Amanda Lee in the article China’s middle class bag ‘luxury’ labels. Amanda Lee writes for the Hong Kong-based blog Fashionography.
China bans certain luxury advertising due to concerns over the growing wealth gap
*But what is that something else?: Remember when Hermes launched their China-only brand Shang Xia? Just one year later, and it’s going strong: “In terms of sales, we do quite well. We average about 60% to 40%, Chinese clients to overseas clients, and Chinese clients are purchasing more high-value items.”
The hunger for designer status bags, even if purchased second-hand, is so great that when Byron Yiu took his company public on the Hong Kong stock market, demand for its shares exceeded the demand for Prada’s IPO launched that same year — which is quite a feat, considering that 43% of Prada’s total sales are from Asia, with sales of Prada handbags alone increasing by 80% in 2010 (sales of sister-brand Miu Miu bags soared by 500%) and the company overall reporting a profit surge of 74% for the first half of 2011, due mostly to its increased visibility and availability in China.
Take a look at the just unveiled Prada Spring 2012 campaign that hit the runway this week in Milan — a quirky mix of cheeky Italian prints and conservative Asian silhouettes:
All revved up for sales in Asia
The trendiness is also fully present, in the flame-strapped shoes and racing-car motifs. Miuccia Prada has learned to steer her collections into “wear them once” territory that satisfies a status-flaunting Chinese clientele eager to impress with the latest designer wear. While Western markets are looking for classic designs that can be mixed and matched and worn for years, Prada is pushing up its sales figures in China with must-have-right-now items whose extremely short shelf lives keep customers coming back through the door for the next wave.
Which is, of course, how the second-hand market thrives, as the early adopters dump their dated merchandise for additional cash to fuel new spending sprees.
It’s kind of brilliant, when you think about it: the early-users (celebrities and super-wealthy shoppers) get their “seen with it first” bang for the buck, then pass the loot on down to the “lightly used” shops which service the middle-class shopper aspiring to be just like the celebrities and super-wealthy. Yiu even mentioned that a good bit of his merchandise is gifted items that the owners would rather trade in for cash.
NOTE 2: Unwanted “gift” items are sometimes bribes to government officials. Since gifts in exchange for favors is part of the culture, there’s a brisk trade in luxury goods, such as high-end bags and watches. The officials either keep the goods as a status symbol, or sell them off for the much more useful cash in hand. A recent Chinese blogger found himself in hot censored water after pointing out the number of Chinese officials wearing luxury watches whose cost far exceeded the purchasing power of their more humble state salaries: Chinese blogger points to luxury watches as sign of corruption.
The NYTimes published an article in 2009 that addressed this very same point: For Bribing Officials, Chinese Give the Best — “China is now the world’s fastest-growing luxury market … according to Bain & Company, a global consulting firm. And industry experts say gifts to government officials make up close to 50 percent of the country’s luxury sales . . . The gifts are essentially bribes or kickbacks, and they are prohibited under Chinese law. But in China, legal experts say, bribery laws are selectively enforced, and party members in good standing are rarely investigated.”
U.S. citizens and companies are prohibited from bribing foreign officials, which often leaves the U.S. out of the loop when doing business in countries where gifting is the way things get done. For example, IBM was ordered to pay a $10 million dollar fine to the SEC in March of this year to settle charges that it had bribed Korean and Chinese officials in exchange for lucrative government contracts — but since it’s likely that the long-term value of the government contracts won far exceed the $10 million dollar fine, the SEC fine is just another acceptable cost of doing business in Asia.
*Speaking of the middle class shopper: LVMH Asia rep Tikka Singh is interviewed about the growth of luxury brands in India and makes it explicitly clear that LVMH is targeting the aspiring middle class through careful product placement with Bollywood celebrities and India’s elite families: “Iconic Indian faces from Indian royalty, whose families have had associations with Louis Vuitton for over 100 years — we do photo shoots with them [and] with top Bollywood stars . . . The aspiring middle class, which is actually the game changer, they see what Bollywood is doing, what the Indian tycoon is doing, what the young politician is buying and they follow that trend.”
Influencing the game changers
Forbes writes that, due to the disasters that hit Japan this year, India will likely overtake Japan as the world’s third largest economy sooner than expected: “The earthquake and tsunami in March nearly shut Japan down for a month and now Japan’s economy is expected to post no growth at all this year, at best, while India’s economy will grow between 7% and 8% in 2011.”
Though Sanjay Banerji points to structural weaknesses in the Indian economy, with 645 million Indian citizens living below the poverty level and 25% of its adult population still illiterate, giving rise to labor unrest and political concerns over the wealth gap.
*But as long as we’re on the topic of influencers: WWD reports that in Brazil it’s the bloggers that are the big movers and shakers, and that a brand needs to court the good-will of bloggers even more than it needs to spend big bucks on advertising: “The local consumer relies heavily on word-of-mouth recommendations, Alice Ferraz said . . . ‘We take our style cues from real women rather than models … Bloggers are important if you want to market a new brand in Brazil. They’re considered opinion leaders. In Brazil, you start with the blogs, and then think about advertising.'”
Yet with all this focus on the exciting growth of the Asian market (and the emergence of Brazil as a new luxury powerhouse), it’s easy to forget that there are other geographical areas doing . . . less well: With all eyes on China, Russian designers struggle to stay afloat
*The U.S. isn’t doing so hot, either: Experts are predicting a ho-ho-hum holiday retail season for 2011, and WWD published a report that details a tectonic generational shift in consumer habits, with U.S. shoppers not expected to return to confidence until 2020 to 2025: “’It could be up until 2020, 2025 until people get to a situation where they feel they can spend freely,’ said Leon Nicholas, director of retail insights at Kantar Retail. ‘The debt overhang is so large for the American household that people simply can’t break free from it by changing a few behaviors.’”
This generational shift is exemplified by the announcement of Coach opening a gleaming flagship in London. With worries over the financial condition of the EU (lots and lots of worries), Coach is primed to position itself as the new affordable splurge: “The average price of a Coach handbag is about $325 compared to about $2,000 for a Louis Vuitton handbag and more than $1,000 for other handbags like Gucci and Prada . . . With its bigger European presence, Coach is counting on providing the consumers with an option of affordable luxury.”
And renowned investor and short-seller Carson Block states that for all the talk of luxury brands selling like blueberry flavored potato chips in China, the greater part of the Chinese consumer picture is overblown: “‘We see the tall, shiny buildings in Shanghai or Beijing and we meet with the Chinese who have graduated from Harvard, who have somewhat been inculcated with western values, and we mistakenly extrapolate this to the large portion of the economy,’ Block said.”
Mr. Block specifically mentions reports of Louis Vuitton success in China as fueling the mistaken notion that all a company needs to do is focus on China and everything will be all right. Which is understandable, considering that 28% of all LVMH’s sales (not just Louis Vuitton, but the entire LVMH stable of brands) now come from Asia, and who wouldn’t be a little eager to get a slice of that blueberry potato chip pie?
2.) OTHER FASHION & FRAGRANCE QUICK HITS:
A.) London Fashion Week came and went in a blur, and we’re already well into Milan Fashion Week (I could hardly keep up with it, there was so much info squeezed into so few days), but one of the most anticipated shows was Tom Ford’s Spring 2012 collection, revealed in London this time around (he presented his Fall 2011 collection in New York). The whole shebang was just as hush-hush for Spring as it was for Fall — no cameras allowed, no pictures released, and the guest list was tightly restricted.
Most of the reaction from the fashion press was predictably positive, save for one unimpressed editor: Tom ‘God’ Ford has off day. Fashion world in denial — “Afterwards, the fashion twittersphere was orgasmic with Tom-love, but it wasn’t doing it for me. What’s more, I was there that night in New York, and I was there at Tom’s last Gucci show, and the energy on those evenings was not there last night, so I take the twittergasms with a pinch of salt. It was glamorous, yes – but when you have Anna, Emanuelle and Dacha front row, Carmen Kass modeling and the champagne flowing, saying a show is glamorous is like saying a pudding is sweet.”
I have a feeling that one specific editor won’t be receiving her invite when the Ford circus next rolls into town.
B.) Dolce & Gabbana ditches its lower-priced D&G line to focus exclusively on the high-end: “‘Without taking the style into consideration, ever since the early days, we were always looking at the Chanel Maison as an example, one with one single brand,’ Dolce explained. ‘We think that in order to work well, to be in the market for a long time, and to leave something after us, there must be only one brand and not two’ . . . All of D&G’s licensing deals, which extend from fragrances to eyewear to watches and beyond, will either be dismissed or folded into the main brand like whipped cream into a chocolate mousse.”
The Spring 2012 D&G line that showed this past week in Milan will be the last hurrah for the sportier, trendier (and lower quality) D&G brand. Runway video below:
The end of the line for D&G
Consolidation is a smart move for Dolce & Gabbana. The aspirational shopper is vanishing due to economic maladies, so there’s going to be less and less demand for the D&G brand anyway. They may as well shut it down before it becomes too big a drag on the rest of the company.
Dolce & Gabbana recently launched a full cosmetics line along with expanding their fragrance portfolio, which allows consumers the ability to purchase into the brand fantasy at an affordable price point, much like they way Chanel has done with its cosmetics and perfumes. So at this point, the lower-price, flashy-sporty-blingy-trashy D&G line was only tarnishing the uber-luxury image of Dolce & Gabbana rather than serving to bolster the bottom line.
Besides, I can think of worse ways of going about business decisions than modeling oneself after the (very successful) House of Chanel.
C.) First there was the news that Tiffany was trying to shrug off its much-touted watch-development deal with Swatch, blaming Swatch for not living up to its end of the bargain, saying that “Swatch has failed to provide appropriate distribution for Tiffany & Co. brand watches, with the result that our current business forecasts do not include any meaningful increase in watch sales or royalty income” while Swatch fired back and claimed that Tiffany made “systematic efforts to block and delay the development of the business.”
And then news broke that Tiffany was worth a lot more without its deal with Swatch than it was with it — mainly because breaking the contract with Swatch removed the last remaining obstacle for potential takeover bids from acquisition hungry investors: “With the joint venture with Swatch breaking up, that removes something that was seen as an obstacle for a takeover with Tiffany,’ Jon Cox, a Zurich-based analyst for Kepler Capital Markets, said in a telephone interview. ‘If someone like a Richemont, another watch company, wanted to take over Tiffany’s, that would have caused complications.'”
Tiffany is said to be worth up to $12 billion as an acquisition target, and interested parties are rumored to be rival luxury conglomerates LVMH and Richemont.
D.) Versace kicks off a brand new perfume with a typically sexed-up ad campaign to remind everyone that hello, there’s still such a thing as Versace perfumes, y’all! Get thee to a perfume counter!
The fragrance is called Yellow Diamond, and the Spring 2012 collections have been featuring lots of yellow, yellow and more yellow (including Versace), so I think we’re sensing a sunny, wannabe-optimistic theme, yes?
The canary in the Versace mine
*Speaking of new perfume launches: The celebrities just keep on rolling in — Beyonce made an in-store appearance at Macy’s for her new Pulse perfume launch, Country singer Taylor Swift debuts her Wonderstruck fragrance, Lancôme hopes to harness some Harry Potter profits by snagging Emma Watson to star in the ad campaign for Trésor Midnight Rose, and 21st century burlesque queen Dita Von Teese drums up some advance hype for her Femme Totale.
E.) Are traditional drug and department store beauty counters in trouble? Forget the beauty counter: Internet and TV cosmetics sales up by $1billion in past five years: “‘Instead of running out to the store to buy their beauty products, they’re watching home shopping channels and infomercials to get the latest on new products. They’re scouring through websites like dermstore.com to get information on high-end facial treatment products with unique benefits,’ said Ms Doskow. They’re also looking for better deals, with group buying sites such a GroupOn and Gilt Groupe giving shoppers exclusive discounts to members.”
It certainly doesn’t hurt that there’s a growing number of reliable beauty blogs for consumers to turn to in order to get information they can trust about new products (rather than rely on over-hyped marketing claims).
And as long as consumers are already on the net reading about products, it’s pretty much a no-brainer that the average jane is going to online shop (like, immediately) for something that sounds good, especially if she can comparison shop for the best deals.
Here’s just a few beauty blogs I can personally recommend — after following their blogs for some time (years, in the case of The Non-Blonde), they’ve all proven themselves to be smart, discerning and impeccably honest: The Beauty Look Book, London Makeup Girl, The Non-Blonde, Get Lippie, and à la peach.
There’s even niche beauty blogging, with sites like Scent Hive diving into the all-natural beauty and skincare scene.
You see? It’s not just in Brazil that bloggers have a lot of influence.
But oh, right! What was the best of London Fashion Week?
The critics gave high praise to Christopher Kane, pretty much across the board, for his technical wizardry (there’s that Harry Potter reference again) with fabric and his surprising choice of embellished pool sandals instead of the usual stiletto platform heels. Video clip for the Kane collection below:
“At the forefront of the best of British talent”
And then, of course, there’s Burberry, which I have to show because it’s the biggest brand Britain’s got, and one of the most powerful global brands overall:
“They don’t lose the fantasy that England is”
Burberry has been at the forefront of employing social media in inventive ways to get the message out about its brand. It was the first major high-fashion brand to allow consumers to order items directly after the runway shows, and for this particular Spring collection, the brand took photographs of each model before she stepped foot on the runway and sent out the pictures over Twitter, so that every Twitter-connected media person in attendance at the show (which is probably 90% of them, as Twitter is the platform of choice for fashion/beauty writers and editors) had instant access to professional shots of the looks as they strode down the runway.
This accomplished two things: 1.) It added an element of delightful technological surprise to the proceedings, giving Burberry yet one more media savvy feather in its cap (“Look! They’re the first . . . again!”), and 2.) Fashion editors and journalists are famous for taking blurry, badly lit camera photos of the runway looks and tweeting them out to their thousands of fashion followers — so with Burberry tweeting professional shots of each look before the models even hit the runway, this meant the editors and writers could “retweet” the beautifully shot photographs instead of sending out their own blurry, low-quality versions.
It also garnered the brand a lot of Twitter attention: “Not surprisingly, the initiative generated a huge amount of interest on Twitter — so much so that both “#Burberry” and “Christopher Bailey” trended worldwide on the platform. Conversation about the brand peaked shortly after the show began at 4 p.m. ET, hitting number two on global trending charts and breaking Burberry’s personal mentions-per-minute record.”
So. Freaking. Smart.