luxury apparel industry
TRANSCRIPT
Personal Luxury Goods Industry
Samyukta Vendrathi
SCOPE • Accessories (30%)• Apparel and fashion (24%)• Hard luxury (22%)• Other (24%)• Includes cosmetics; fragrances etc.
Industry Size • $268.55 billion • Profit margin – High • Range – 5% to 25%• Majority – 10% to 20%
Industry Growth • Current growth rate is 1%-2% in real terms (per annum) • Growth rate is supported by:• Chinese consumers • Loyal consumers in the US• Japanese shoppers returning to luxury goods
Key Players • Louis Vuitton (LVMH)• Hermes • Gucci• Prada• Burberry • Chanel
Major Markets • US• Japan • Europe
Customers: Based on generation • Based on generation: Younger generations (generation x and
generation y) outspend baby boomers• Generation x – changing consumer habits • Generation y – 50 million new consumers into the market
Customers: Based on nationality • Chinese (31%)• American (24%)• Europeans (18%)
Potential Customers • Emerging upper middle class all over the world. • Customers in countries with no physical access to stores. They are
potential customers because of the increasing trend in using e-commerce by luxury brands
Industry Dynamics: Porter’s Five Forces
Threat of new entrants
(Low)
Bargaining Power of
Customers(Moderate)
Bargaining Power of Suppliers(Moderate)
Threat of substitutes
(High)
Competition/
Rivalry
Industry Dynamics: PESTLE AnalysisPolitical • Instability in certain countries (middle east)• Political relations between countries and its effects on
tourism
Economic • Currency fluctuations • Slow increase in the economic health of mature markets
(US, Europe, Japan)
Social • Cultural variations in terms of brand loyalty (Japan, more
loyal customers)• Emerging upper middle class population
Industry Dynamics: PESTLE AnalysisTechnological • Greater use of e-commerce as a platform for making sales• Greater demand for an Omni channel experience
Legal • Stricter regulatory environment – example: Proposition 65• Difficulty in filing lawsuits against counterfeit products
(tracking the people responsible)
Environmental • Consumers are becoming more eco-friendly • Use of animal fur, skin etc, in products
Trends Impacting the Future:Industry • Chinese consumers • Increasing upper middle class• Attitude towards display of wealth • Availability of luxury goods
• E-commerce • Convenience • Increase in transparency – reducing regional price variations
• Acquisitions: Horizontal and Vertical• Attempts at consolidations by companies in order to make up for stagnating
growth in sales or to gain better control over the value chain (raw materials to retail) or to gain a greater portion of market share RESULT: greater concentration of power
Trends Impacting the Future: Politico-economic Scenario • Global economic health • Slow increase in economic health (mainly US, Europe, Japan)• Political instability in the middle east
• US elections • Uncertainty in policies post US presidential elections• Trump victory – to further boost dollar. This could affect tourism which
supports about 50% of the personal luxury goods consumption in the US
Trends Impacting the Future: Currency Fluctuation • Japan has fallen into a recession 3 times since the 2008 global
recession • But has increasing demand for personal luxury goods • Result of tourism in Japan which has been attracted by Japan’s weak
yen – mainly consisted of Chinese customers – following loosening of Visa requirements for Chinese nationals• Strong US dollar is affecting tourism and driving tourists to alternative
destinations like Japan, Europe etc,.• Weak Euro is also attracting tourists
So What?• The industry attractiveness is between low and moderate • Loyalty of customers makes entry into this industry difficult and the
prevalence of counterfeit products makes it risky.
• The industry performance is dependent on factors like economic health of nations, currency fluctuations etc, making it uncertain• It is necessary to take steps to adapt to changing needs or mitigate risks
• New trends like e-commerce• Personal luxury goods firms should adapt to changing consumers’ demands
and identify potential in capturing greater share of the market while maintaining exclusivity to extents needed
Sources • http://
www.mckinsey.com/business-functions/marketing-and-sales/our-insights/tapping-chinas-luxury-goods-market • http://www.therichest.com/expensive-lifestyle/fashion/10-most-powerful-luxury
-fashion-brands-in-the-world/ • https://hbr.org/2016/02/luxury-brands-can-no-longer-ignore-sustainability • https://www2.deloitte.com/content/dam/Deloitte/no/Documents/consumer-ind
ustrial-products/global-powers-of-luxury-goods-2015.pdf • http://www.bain.com/Images/BAIN_REPORT_Global_Luxury_2015.pdf• http://blogs.wsj.com/chinarealtime/2016/08/16/luxury-brands-get-tough-with-c
ounterfeiters/