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LUXURY GOODS

by EOS Intelligence EOS Intelligence No Comments

Luxury Brands Become Collateral Damage of Hong Kong-China Conflict

Talk to any top executive at Gucci, Prada, Tiffany (or any luxury brand for that matter) and they will tell you the importance of Hong Kong as a market in their business. For years, Hong Kong has ranked among the top five luxury hubs and accounted for about 5-10% of the estimated US$285 billion luxury goods market. However, the recent pro-democratic protests in Hong Kong against China have left luxury brands grappling, with many undergoing store closures. With the situation seeming to worsen by the minute, luxury brands must act fast and with prudence to limit their losses, formulate strategies, and identify other regions that may help them offset loss of revenues from Hong Kong.

Hong Kong has been one of the top destinations for luxury brands with several leading brands operating multiple stores in this small area encompassing 427 square miles and housing a population of 7.5 million. Hong Kong achieved this cult status due to a large number of visitors from mainland China (as well as other Asian countries) who travel to Hong Kong to shop. This is due to Hong Kong’s tax-free policy and an assurance that the products purchased are genuine (unlike in China where stores are distrusted).

Most of the leading luxury retailers derive a significant portion of their sales from Hong Kong. Richemont Group (which owns brands such as Cartier, Chloe, Dunhill, Jaeger-LeCoultre, Montblanc, Panerai, Piaget, and Roger Dubuis, among many other) derives about 11% of its global sales from Hong Kong, while Burberry derives about 8-9% of its global sales from the territory. Brands such as LVMH and Prada attain about 6% of their global sales from Hong Kong. Despite having one of the highest real estate costs, brands have always been bullish about Hong Kong, opening multiple stores and stocking their best and most recent collections.

Recent protests impact luxury retail sales

However, since mid-2019, Hong Kong’s retail market has taken a big hit. What started as a protest over an extradition law has translated into a full-fledged pro-democracy movement challenging China’s grip over Hong Kong and has brought the latter to a standstill.

Along with a large fall in visitors from China, several other countries have issued travel warnings against Hong Kong. Visitor numbers declined by 39% in August 2019 (compared with August 2018), with visitors from China falling more than 42% during the same period. In addition to fewer tourists, the local population is also avoiding malls and other public places owing to the ongoing protects. In fact, about 30 shopping malls shut down across Hong Kong in October due to violent protests. These closures have come around the peak festive time (the Golden Week holiday) and have continued to remain closed during the otherwise well-performing Thanksgiving week.

This has converted one of retail’s best performing markets into one of the poorest. Brands such as Burberry, Hermes, Prada, and Tiffany have been forced to shut down few of their stores in Hong Kong. The sales of premium goods, such as jewelry, watches, and other high-value items plunged by nearly 50% in August 2019, when compared year-on-year.

This has converted one of retail’s best performing markets into one of the poorest. Brands such as Burberry, Hermes, Prada, and Tiffany have been forced to shut down few of their stores in Hong Kong. The sales of premium goods, such as jewelry, watches, and other high-value items plunged by nearly 50% in August 2019, when compared year-on-year.

Brands are estimated to suffer a 30-60% quarterly drop in sales in Q3 2019 and considering how the protests are widening and worsening, the sales are expected to drop further in Q4. For instance, as per UK-based financial services firm, Jefferies, Burberry’s sales from Hong Kong are expected to fall by about GBP100 million (US$131.6 million) in 2019. While the brand is expected to offset half of the loss from growing sales in other regions, the remaining loss will be incurred by the luxury retailer.

Given the steep fall in sales and high real estate cost, brands are now revaluating their presence in Hong Kong. In October 2019, Prada announced its plan to shut down one of its flagship stores in Causeway Bay. The company used to pay HK$9 million (US$1.2 million) monthly rent for the 15,000 square feet store and could not justify the high costs anymore. While a few brands are shutting down stores, few others, such as Burberry, are talking to their landlords about rent reduction to cope with the gloomy sales in the short run.

The impact on luxury sales may not be just short term in Hong Kong. Several brands are re-strategizing their approach towards Hong Kong, especially with regards to the Chinese customer. Chinese customers are increasingly going for shopping trips to Japan and South Korea instead of Hong Kong.

Moreover, the Chinese government is also encouraging customers to shop in mainland China by reducing taxes and thereby narrowing the price gap between China and overseas. In 2018, the Chinese government reduced import taxes on luxury goods and followed it with a cut in value-added tax in April 2019. Post this, several brands such as Gucci and Hermes reduced their prices by about 3% in China. This might show that several brands are trying to offset their losses in Hong Kong by targeting the Chinese consumer in their home country.

Brands are also shifting their marketing investments from Hong Kong towards the mainland. Hermes and LV have been extremely bullish about the Chinese market and have opened new stores in the region. Hermes opened its 26th store in China in 2019 and has been expanding its e-commerce presence in China since launching it in 2018.

Luxury Brands Become Collateral Damage of Hong Kong-China Conflict by EOS Intelligence

Brands are extra careful about their design and communication

In addition to focusing on reaching the Chinese customers (in their home market as well as new travel destinations), brands are also being extra cautious about not supporting Hong Kong in the conflict. China has been prompt at bringing brands to task if and when they identified Hong Kong as an independent country in any of their designs or brand communication.

Brands such as Givenchy, LVMH, Versace, and Coach have publically apologized to the Chinese nationals for their clothing designs that labeled Hong Kong as a separate country (from China). Moreover, they removed all such designs from their collections, globally, to ensure they remain in good books of the Chinese customers.

The Chinese have also been very sensitive about any support or sympathy shown to Hong Kong with regards to the conflict. For instance, Tiffany received significant backlash for one of its print ads, which showed a female model covering her right eye with her hand. The Chinese saw this as a sympathetic shout out to the Hong Kong protester who was shot in the eye in August 2019. While Tiffany clarified that the campaign was not a political statement and was conceptualized and shot much before the incident, they eventually removed the image from all digital and social media platforms.

Although not directly related to luxury brands, in October 2019, the Chinese government sanctioned the NBA for a pro-Hong Kong tweet by Daryl Morey, who is the GM of Houston Rockets team. The NBA and Tiffany cases show China’s lack of tolerance towards any pro-Hong Kong message by any brand or organization and thereby brands must ensure that they distance themselves from any pro-Hong Kong sentiment (real or perceived).

Thus it is quite possible that Hong Kong market may lose its luster for luxury goods for good, especially if the Chinese customers stray elsewhere for their shopping. In that case Hong Kong market will only remain relevant for its own residents, which may not justify more than 2-3 stores for a brand in the city.

Thus it is quite possible that Hong Kong market may lose its luster for luxury goods for good, especially if the Chinese customers stray elsewhere for their shopping. In that case Hong Kong market will only remain relevant for its own residents, which may not justify more than 2-3 stores for a brand in the city.

Most brands are currently following a wait and watch strategy, where they are not sending large amounts of their inventory to Hong Kong as has always been the case. They have temporarily shut down shops and given unpaid leaves to their employees. They will wait and gauge if the Chinese consumers do return to Hong Kong when the situation settles and decide the future course accordingly. In case the Chinese customer takes a fancy to other shopping destinations (such as Japan) or start shopping domestically, Hong Kong may lose its position as the luxury hub of Asia.

Opportunities that may arise

In case the Hong Kong conflict has any permanent impact on luxury sales in the region, brands will have to go back to the drawing board to ensure a strong position in Asia. In addition to identifying and developing new shopping hubs for the Chinese customers, brands will also have to alter their strategy and approach to retain Hong Kong’s resident customers. Hong Kong’s resident customers are also avid shoppers but they are more price sensitive in comparison with their Chinese counterparts.

Targeting solely the local residents may also widen the scope of e-commerce in luxury retail sales. Unlike most other markets, e-commerce has not been a major driver of sales in Hong Kong. This is due to the fact that a large number of shoppers are travelers and therefore prefer to make their purchases from retail stores. Moreover, the presence of multiple stores within a small area further reduced the need for e-commerce.

However, if brands plan to reduce their footprint in Hong Kong (only to cater to local residents), they may look at shutting down few stores and promoting e-commerce sales. Hong Kong residents are also more likely to purchase from online multi-brand aggregators (such as Farfetch and Net-a-Porter) that offer deals and discounts. Thus working with such aggregators to promote their brands may also be a good avenue for luxury retailers.

A growing focus and investment towards developing the e-commerce part of the business may also result in growing demand and thereby investments in the mobile payment technologies (which are used for easy payments for purchases) in Hong Kong. While this technology never really took off in Hong Kong as it did in China, this may help in providing the push that it needed.

EOS Perspective

While it is yet to be determined if the ongoing conflict will have a permanent effect on Hong Kong’s position as a prime shopping destination, it is safe to say that the situation will remain unfavorable for the next few months. While some brands such as Prada are already shutting down stores permanently and limiting their exposure in Hong Kong, others such as Burberry are a little more optimistic and want to wait before taking any such decision. This is due to the fact that Hong Kong previously faced a similar situation in 2014, when the umbrella revolution disrupted sales. However, sales bounced back shortly after and Hong Kong continued to be one of the most important luxury markets.

That being said, current protests have become much more intense than anything Hong Kong has endured before and do hold the ability to permanently contract Hong Kong’s role as a leading travel and shopping destination. This may force brands to rethink their strategy for the region with increased focus on e-commerce. This in turn could create opportunities for Hong Kong’s e-commerce and its ancillary markets.

by EOS Intelligence EOS Intelligence No Comments

Blockchain Paving Its Way into Retail Industry

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Blockchain technology, which initially became popular with cryptocurrency (especially bitcoin), is now making its way into many other industries, including retail. Though still in its infancy, blockchain holds tremendous potential for retailers and has applications across supply chain data management, customer retention through loyalty programs, digital advertising, among many others. While several industry experts have proclaimed blockchain to be the next revolutionary technology in the retail sector, it is yet to be seen if these applications gain commercial acceptability (or remain niche solutions for niche products).

While the financial services industry has been one of the early adopters of blockchain technology, other sectors are also increasingly realizing the potential that blockchain can unlock for their businesses.

One such sector is retail, which is increasingly going digital – shedding its paper-based and centralized way of doing business. With an increasingly demanding customer and growing need for transparency, blockchain technology is expected to play a big role in the retail sector.

In addition to its inherent application as a payment-medium supporter (i.e. increasing acceptance of cryptocurrencies as a payment mode by retailers), blockchain has several other applications in the retail space – encompassing supply chain management, customer loyalty programs, and digital advertising.

Blockchain in supply chain

Blockchain helps improve transparency

Blockchain technology makes it possible to record every touchpoint of the product’s life as it moves through the supply chain – from manufacturer to shipper to supplier to seller – adding blocks of verifiable record to the product’s heritage.

For instance, if a supermarket is selling a box of cookies, blockchain data would record exactly when, where, and by whom the cookies were made, as well as what ingredients were used during manufacturing. By placing the cookies supply chain on the blockchain, the process becomes more transparent through inerasable tracking of how cookies have been handled at each node all the way up to the store shelves. This makes any affected ingredient traceable faster. For instance, if milk or eggs used in the cookies were affected due to poor storage, the affected ingredient (or its batch) could be traced back to the storage location and could be withdrawn from the warehouse without the tedious and error-prone process of checking each supply chain node. This ensures greater food safety and helps hold suppliers accountable throughout the chain. This is also useful in case of tracing of organic products where it is particularly important to trace whether each ingredient used to make a product is organic and matches the claims made by the producer.

There are several players in the industry who are already taking advantage of the benefits brought to their operations by blockchain. One of the largest retail giants, Walmart, has partnered with IBM and has been working together since October 2016 to develop a food safety blockchain technology called, IBMs Food Trust, to facilitate the digitization of the food supply chain process. The technology, which was previously in its testing phase, was launched for commercial use in October 2018. With the help of this technology, the source of the product can be tracked in 2.2 seconds, which previously could take up to seven days (with the use of paper-based ledgers).

In September 2018, Walmart announced a Food Trust Initiative, under which it has requested all its greens suppliers to upload data about their produce on the blockchain and ensure end-to-end traceability by September 2019. It is likely that the company extends the use of this technology to other fresh foods and vegetable suppliers in future.

Post the commercial launch of the IBM Food Trust platform in October 2018, France-based retail giant, Carrefour, also announced that it will be using IBM’s blockchain technology to track animal and vegetable product lines. Furthermore, it expects to expand this technology to other fresh products by 2022.

Blockchain Paving Its Way into the Retail Industry

Blockchain effectively combats food-related fraud

Another issue that blockchain helps combat in the retail space is food-related fraud, i.e. the misrepresentation of product contents by substituting the ingredients with cheaper alternatives. It is estimated that the global food industry suffers losses of about US$40 billion annually due to food fraud. An example of such a fraud was the Tesco horsemeat scandal in 2013, where some of Tesco’s packaged beef meals were found to include 60% horsemeat (undeclared on the label).

To fight such frauds, one of the world’s largest e-commerce players, Alibaba, has partnered with four Australian and New-Zealand-based companies, among whom are Blackmores (an Australian health supplement company) and Fonterra (a multinational dairy co-operative) to create a food tracing system built on blockchain technology. The project entered into its pilot phase in 2018. Through this system, Tmall Global’s (Alibaba’s international online marketplace) customers in China will be able to trace the goods that they order online (from partnering companies) across each node of the supply chain before the goods are finally delivered. The partnership is not only expected to help customers track the supply chain of food ordered online but also to prevent food fraud thanks to greater visibility and traceability of such fraudulent actions potentially attempted by producers.

Blockchain helps bring down the counterfeit luxury goods market

As a digital ledger where multiple stakeholders share and authenticate the same information, blockchain also makes counterfeiting more difficult. Counterfeiting is a big issue in the luxury and premium goods market owing to high prices and limited availability. The scale of counterfeiting in the luxury retail segment is overwhelming and it is sometimes nearly impossible to distinguish legitimate goods from the counterfeit ones. Forbes estimated the counterfeit luxury goods market in 2018 to be worth approximately US$1.2 trillion.

However, the use of blockchain technology can help luxury brands fight against the menace of counterfeiting. By using blockchain, companies can track every link in their supply chain and customers can access information to ensure the origins of the product and its authenticity.

Greats, a US-based premium sneaker brand, has been using blockchain and embedding smart tags in its footwear since 2016. Customers can use their smartphones to scan the tags to verify the authenticity of the sneakers.

The use of blockchain technology can help luxury brands (and other retail companies) fight against the menace of counterfeiting. By using blockchain, companies can track every link in their supply chain and customers can access this information through smartphones to ensure the origins of the product and its authenticity.

In 2018, a Paris-based blockchain company, Arianee, announced that it will be building a registry to combat counterfeiting of luxury brands, where every product will be classified with a unique token that differentiates it from the rest of the products.

Another example of this is De Beers, one of the world’s largest diamond producers, which along with five other diamond players (Diacore, Diarough, KGK Group, Rosy Blue NV, and Venus Jewel) has developed a blockchain platform, called Tracr in 2017. Through this platform, a diamond can be tracked from miner to end customer, i.e. throughout its complete value chain, using ethereum blockchain technology. In 2018, De Beers announced that it has successfully tracked 100 high-value diamonds along the value chain during the pilot run of its blockchain platform. The platform is expected to bring transparency in the diamond trade through physical identification of diamonds. A diamond could be tracked through its unique number from mining to cutting to polishing and to retail, which will ensure its purity.

Owing to its ability to empower companies to track, trace, and authenticate their products from the point of origin to the retail shelf, blockchain is likely to become the standard in supply chain tracking for the retail sector. However, this application is currently in its nascent stage of development and is being experimented on by only few large and niche players before it reaches industry-wide adoption.

Blockchain in customer loyalty programs

Customer loyalty points is another area where blockchain could be considered very useful. Loyalty programs generally work by awarding points to customer account for each purchase, which later can be redeemed for discounts on future purchases. While it follows the principle that retaining existing customers is less expensive than attracting new customers, loyalty programs are not always successful.

Most loyalty programs are centralized, where the customer could only redeem its value with the same retailer (or in some cases a small group of retailers), thereby limiting their use and appeal. Moreover, in many cases, loyalty programs also have stipulations that further restrict the use of the points and reduce the program’s perceived value, which in turn results in lower loyalty of the customer. According to Colloquy Loyalty Census 2017, there were approximately 3,000 loyalty programs in North America, where 6.7 trillion points were issued every year and about 21 trillion points were dormant or not used. This suggests that more often than not, customers find loyalty programs more exhausting than benefitting, defeating the entire purpose of having loyalty programs.

Blockchain technology allows customers the flexibility to use their loyalty points when and how they please. Blockchain-based loyalty programs award customers with tokens or cryptocurrencies instead of points, which could be redeemed by customers during future retail purchases and could even be redeemed for fiat currency (as the value of tokens grow overtime and do not expire).

This can be seen in the case of Rakutan’s loyalty program. In 2018, Rakutan, one of Japan’s largest retailers, announced an alt-coin, called Rakutan Coin, with which customers could redeem reward points for gifts at all Rakutan Group companies and also for other cryptocurrencies. The company has moved US$9 billion worth of existing Super Points (customer loyalty program points) into the blockchain to provide a boost to the Rakutan Coin.

Blockchain-based loyalty programs award customers with tokens or cryptocurrencies instead of points, which could be redeemed by customers during future retail purchases and could even be redeemed for fiat currency.

In another example, in 2017, University of New South Wales in Australia partnered with LoyaltyX, an experimental loyalty agency for a blockchain loyalty research project, wherein students and staff earned US$5 of ether (cryptocurrency ethereum) for every ten transactions made at any of the eleven campus retailers including Boost Juice (Australian fruit juice and smoothie retail outlet) and IGA (Australian chain of supermarkets). It was found that 86% of the participants were more attracted to earn cryptocurrencies where they had the option to redeem them for fiat currency.

Thus, blockchain-powered programs seem to encourage customers to engage in the loyalty programs as they not only curb the problem of set expiration of traditional loyalty points but also give the power to the customer to use the tokens as and when they require with any retailer. This is likely to help retailers renew customer interest in their loyalty programs, which in turn is likely to improve brand loyalty.

In addition to adoption in the retail space, players from other related industries are also experimenting with blockchain-based loyalty programs. In 2018, American Express (an American financial services company) partnered with Boxed (an American online wholesale retailer) to make its membership rewards program more versatile by integrating blockchain. With blockchain, merchants will be able to create custom membership rewards program for American Express card holders. The power to structure the offers will be with the merchants, whereas American Express will have the right to regulate the products or brands being promoted.

Also in the same year, Singapore Airlines partnered with KPMG and Microsoft and created a blockchain-based digital wallet KrisPay, where customers can turn travel miles into units of payment that can be used with partner merchants such as eateries, beauty parlors, gas stations, and some retailers, including LEGO store outlets within Singapore. This shows that some large brands are experimenting with this technology for their loyalty programs.

While integration of blockchain seems to be the ideal solution to invigorate the fading customer loyalty programs, it is still in its embryonic stage. Such applications need mass adaption to be successful and this will require significant time and investments.

Moreover, the adoption and success of blockchain-based loyalty programs to an extent also depend on the overall sentiment towards cryptocurrencies – their value and ease of transactions.

Lastly, scalability is also an extremely critical point for the smooth running of such loyalty programs. With numerous retail transactions happening every second, it is yet to be seen if blockchain can cater to these huge numbers without a slag time.

Blockchain in digital advertising

Another space where blockchain technology is likely to have significant potential is digital advertising, which is used by numerous retailers as a medium to reach their prospective customers. However, the process of buying online advertising is susceptible to fraud, especially with the increasing use of automated real-time bidding through ad-exchanges (programmatic advertising).

Under real-time programmatic advertising, publishers (themselves or through ad vendors) showcase their inventory along with details about the kind of visitors that their site targets. The advertisers then bid for these ad impressions and the highest bidder gets to display their ad on the site.

The entire process and ad marketplace lacks a sufficient level of transparency. Sometimes vendors misrepresent remnant inventory for a publisher as premium inventory, thereby charging higher fees from advertisers. In other cases, fraudulent sellers enter the exchange, claiming to represent publishers and having access to their inventory, in turn selling fake inventory to advertisers.

Blockchain has the potential to make the online ad marketplace more robust and legitimate by providing transparency, which is currently missing. Since blockchain is a peer-to-peer online ledger where all transactions between the participating parties are recorded (and cannot be deleted or changed), the advertisers can see for themselves where the inventory that they are bidding for has originated and who has access/authority to sell it.

Some examples of implementations are already found in the market. In June 2017, MetaX, a blockchain technology company, along with DMA (The Data and Marketing Association) launched adChain, an open protocol built on the public ethereum. adChain is an open access ledger that tracks and reports the origin, sale, resale, and publishing of an online ad.


Explore our other Perspectives on blockchain


In December 2017, MetaX also launched a blockchain-based solution ‘Ads.txt Plus’ to improve transparency in the digital advertising space. Ads.txt Plus is based on a technology by IAB Tech Lab, called Ads.txt, which helps prevent fraud in the industry by allowing publishers to broadcast a list of authorized sellers of their ad inventory. By bringing this technology to ethereum blockchain, MetaX aims to further improve efficiency and transparency for its users.

If blockchain is adopted successfully in the digital advertising space, the advertisers can see exactly where their ad dollars are being spent, which players made commission, and how much of the total amount paid by them for the ad reached the site publisher.

Further, with the help of blockchain, buyers and sellers (advertisers and publishers) can enter into smart contracts for the sale and purchase of digital ads without the need for intermediaries, eliminating them from the ad bidding process.

Alternatively, buyers and sellers can choose to add other verifying parties/service providers to the smart contracts, such as measurement provider, ratings provider, payment provider, and arbitrator. In 2017, Kochava Labs (the R&D subsidiary of Kochava Inc.) launched XCHNG, an open and unified blockchain-based framework for the digital advertising ecosystem. Through the use of smart contacts, XCHNG aims at reducing the number of middlemen in the digital advertising ecosystem by facilitating transactions between the buyer and the seller and measurement providers.

While blockchain-based solutions fit perfectly in the digital advertising space on paper, the practicality and adaptability are yet to be seen.

One of the key issues challenging the adoption of blockchain in the digital ad space is scalability. The process of chaining and verifying on a blockchain takes much longer, especially, when compared with the current speed of real-time bidding transactions. It is yet to be seen if blockchain technology can evolve to offer faster processing speed, which is critical for industry-wide adoption.

While blockchain-based solutions fit perfectly in the digital advertising space on paper, the practicality and adaptability are yet to be seen. One of the key issues challenging the adoption of blockchain in the digital ad space is scalability.

While few blockchain solutions, such as XCHNG (which claims it can handle 180,000 transactions per second per smart contract composed of multiple insertion orders), refute this challenge, the other challenge in this area is that of intent. Since blockchain is expected to make transactions more transparent and also reduce the number of intermediaries, industry players may not fully embrace the technology and despite its inherent benefits, blockchain may take time to gain ground in the digital advertising industry.

EOS Perspective

In an era where businesses are becoming more customer centric, blockchain helps bring the customer and retailer together on the same platform and promises a future with more transparency. It is clear that blockchain technology has the ability to transform the retail sector just as it is likely to transform several other industries (such as healthcare, car rental and leasing, or aviation).

However, despite holding immense potential and promise, most applications in this space are still to move beyond just being proof-of-concepts. Several issues, such as high investment requirements, scalability, and to an extent, willingness to change, remain to be addressed before there is an industry-wide acceptance for these solutions.

That being said, executives are definitely keeping an eye open for the latest developments in this space and several of them are open to testing and investing in blockchain-based solutions, hoping for them to be the key differentiator/value-proposition that attract the customers towards them. While most investments currently are being seen in the supply chain space (since its benefits seem most achievable and tangible), solutions in the space of loyalty programs and digital advertising may take a little more time to gain traction.

It is safe to say that retailers cannot afford to ignore the benefits of blockchain technology anymore. Many retailers lack specific understanding of this concept and its potential across different areas of their operations. This could cost them dearly in terms of customers. Technological innovations are happening at light-speed in today’s day and age and while blockchain technology currently may lack commercial acceptability and scalability, it is expected to seep into the operations of the real sector in a significant way in the coming future.

by EOS Intelligence EOS Intelligence No Comments

Thailand: Endeavoring to Become Asia’s Next Luxury Shopping Stop

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As purchasing power growth is slowing down in mature markets such as the USA and Europe, international brands and luxury retailers are seeking expansion opportunities in dynamic and rapidly developing Asian countries. Thailand is fast becoming a destination of choice for several luxury brands owing to robust demand, developed urban infrastructure, and low cost of establishing a business. Increasing number of tourists indulging in massive luxury spending as well as mushrooming high-end shopping centers are slowly coalescing to establish Thailand as a premier luxury shopping hub in South East Asia.

Luxury goods sales in Thailand are likely to reach US$ 2.2 billion by 2019 owing to improved economic conditions, retail expansion, and plethora of international brands entering the country. This growth has also spurred as Thailand offers several other benefits to luxury brands and retailers such as low rent and investment cost, and strong government support. Retail infrastructure is also witnessing a rapid growth, with expansion of several shopping malls and outlets.

Thailand - Asia’s Next Luxury Shopping Stop-1

Despite the bright growth prospects and encouraging retail development, there are several factors that are inhibiting this growth. For instance, the high luxury goods tax is a major hindrance to retail sales. Other factors such as counterfeit products, fragmented market, and political instability in the country are also adversely affecting sales.

Thailand - Asia’s Next Luxury Shopping Stop-2

EOS Perspective

Thailand faces a strong competition from other commercial centers such as Hong Kong, China, and Singapore, yet it is slowly emerging as a premier market for luxury products due to its unique ability to offer goods at more competitive prices owing to relatively lower overheads. Additionally, China and Hong Kong are the two most penetrated markets by high street brands in Asia, and are approaching saturation. Several luxury brands are halting further expansion in the two countries amid sluggish sales. Consequently, this has opened doors for Thailand which is slowly becoming a target market for retailers to expand operations.

Nevertheless, luxury retailers in Thailand face a major setback due to the 30% luxury goods tax, which discourages even affluent shoppers. Limited domestic purchasing capabilities further hinder sales, however relatively low housing costs leave a considerable disposable income in hand, which marginally helps to spur luxury spending.

Based on our analysis, certain strategies can be adopted to succeed in the Thai market – widening distribution channel by opting for online retailing, choosing the right target audience, designing an effective marketing strategy, and tapping the M-commerce boom in Thailand.

 

Thailand - Asia’s Next Luxury Shopping Stop-3

 

While Thailand still remains behind many of its peer countries in terms of luxury retail development, it is likely to become one of the leading Asian markets in medium to long term, increasingly hosting several prominent international luxury brands and registering tremendous retail sales growth.

by EOS Intelligence EOS Intelligence No Comments

Luxury Brands Losing Ground in China, Looking Elsewhere

It was not very long ago, when the European luxury products market sprung back to life on the back of the booming Asian markets. Right after the global recession, most luxury brands, however, re-strategized their efforts towards the high-end luxury-hungry markets of China and other Asia-Pacific regions. For the last several years, China has been the industry’s main growth engine, helping make up for lackluster demand in Europe and Japan. But this period seems to be ending much sooner than the industry would have wished for.

Leading luxury brands, Louis Vuitton, Gucci, and Burberry, are losing their shine in the Chinese market, which along with Hong Kong and Macau, represent more than a third of global sales for most of these brands. This premature slump is attributed not only to the stagnation in the Chinese economy, but also to a maturity in consumer tastes in the region.

Over the past few years, there was an explosion of demand for luxury items that communicated wealth and status to the society. However, on the flip side, this led to over-exposure of luxury brands, which in time has resulted in them losing their premium status. This has translated into a shift in priorities among such consumers, who now feel a ubiquitous ‘logo-fatigue’ with such products and are looking for goods that provide a more unique and authentic image.

Unlike the more established European and American markets, where trends and consumer preferences take a long time to form and assimilate, Asian (especially Chinese) markets have witnessed consumer trends emerge, become a fad, and then be rejected, very quickly. The shorter life span of a trend makes it a challenge for these companies to move out of the ‘masstige’ market (a combination of mass and prestige market) and present a fresh take on luxury items with discrete or even absent logos. Several brands, such as Saint Laurent and Balenciaga, have realized this shift in consumer perception of luxury and have been successful in implementing it.

Although most leading fashion and luxury brands have now embraced this trend in their Asian strategy, the demand from China is not expected to recover enough to regain its peak. A large proportion of luxury products’ demand came from China’s deep-embedded culture of lavish gifting for favors (to government officials); however, President Xi’s latest campaign against corruption and lavish gifting have further dampened sales of luxury products, especially watches.

This puts the industry in a challenging spot to re-innovate themselves for the Asian consumers as well as to find new growth frontiers. While other Asian counterparts, such as India, continue to look promising, luxury brands are now establishing presence in African markets. Sub-Saharan Africa is being viewed as a promising market for luxury goods on the back of increasing urbanization, economic development and most importantly a burgeoning aspirational middle-upper class that view luxury goods as a sign of status and success. Although, growth is from a low base, the appetite for luxury goods in this market is expected to soar. Leading brands – Cartier, Louis Vuitton, Burberry, Gucci, Fendi, and Salvatore Ferragamo, have already set foot in Africa. While these brands are largely concentrated in South Africa and Morocco, luxury sales are also picking up in new markets like Angola and Nigeria.

Although most companies have started focusing on developing themselves in the African markets, it is far-fetched to say that these markets will be able to substitute the demand from China and other maturing Asia-Pacific regions, especially any time in the near future. This puts the industry in a precarious position in the coming years, settling down for moderate growth. Companies that push themselves at this time, to redefine luxury and bring about radical changes to advertising campaigns and store designs to recapture the audience have a strong chance of emerging as market leaders.

by EOS Intelligence EOS Intelligence No Comments

Can ‘Made In China’ Become a Desirable Label in the Luxury World?

If you type ‘Chinese luxury’ in your search engine, you are very likely to get a plethora of information on China being a hot spot for Western-produced luxury goods, as the demand for luxury is strong and continues to grow. What you are unlikely to find amongst your top searches, is information about recognized and valued China-originated luxury brands. Is this likely to change any time soon?

Over the next 5-7 years, China is expected to move up to become the second largest luxury market in the world, after Japan. Luxury market growth in China is forecast at a healthy 10-15% during 2013, driven by aspirational consumers whose financial position is rapidly improving and who originate from a cultural background where image, social stand, and respect from others are important values. The concept of luxury falls well within Asian cultural context, as luxury goods are a great tool to wordlessly manifest one’s high stand in the society.

Budding Chinese Brands

For several years now, China has been an attractive market for European luxury products, but it is yet to build its own set of valued, recognized luxury brands that can figure alongside the likes of Hermes or Louis Vuitton. While there seems to be some activity on this front, with some truly Chinese brands struggling to up their game and attempting to compete in the luxury market, the question is whether they are capable of succeeding.Top Luxury Brands in China

Undoubtedly, there are some established high-end labels that have originated from Hong Kong and China, including Shanghai Tang, Ne-Tiger, Longio, Ascot Chang, Qeelin, Shang Xia, or Mary Ching. But for now they are known and appreciated mostly locally, and even in their domestic market, they lag behind the Western luxury brands. Chinese consumers are instinctively patriotic, so those Chinese luxury brands that are able to build associations with status statement are likely to win domestic consumers over period of time. But will these brands become as relevant and influential internationally as the brands in the LVMH portfolio?

Two Great Challenges

The first challenge for aspiring Chinese luxury houses is to develop great quality brands that will represent superior materials, flawless craftsmanship, unique and relevant designs, consistent quality management, and luxury-level service. This might be relatively easy to do, with proliferation of young creative Asian designers, who often gain their experience abroad. With several high-end and luxury European brands having some parts of production located in China, the know-how and skill set is already being transferred. In some regions, e.g. Southern China, manufacturing is shedding its image of low-cost, mass-produced, low-quality manufacturing center.

The second challenge is to change consumer attitudes, both domestically as well as internationally. Fighting the ‘made in China’ image requires revamping consumer perceptions, which oftentimes, once built, are very difficult to alter. For years, China has been associated almost exclusively as the source of cheap, substandard, unoriginal, and mass products. Even in China itself, while the attitudes towards Chinese-made apparel in mid range segment have improved, domestic high-end brands have not gained good recognition and acceptance, and many domestic luxury customers still prefer well known European brands. Local brands simply cannot provide the status that Chinese luxury shoppers look for. At least not yet.

The negative connotations are particularly strong in Western markets, where it will take a very long time before consumers are ready to accept a ‘made in China’ luxury brand. A European aficionado of luxury couture brands such as Louis Vuitton, Hermes, Gucci, Chanel, or Prada is unlikely to be open to trying luxury products originating from China, a land known for counterfeit goods, bad quality and cheap equivalents available for the masses.

Regardless of the geography, majority of purchases of luxury brands are driven by the desire to conspicuously communicate the belonging to the high, rich, and exclusive sphere in the society, and LV or Hermes logo communicates it in a matter of seconds. Purchasing a piece with a logo that is not instantly recognized by others appears pointless and contrary to the very essence of luxury logo display. This is also true (though to somewhat lower extent) for far more sophisticated, mature, and less conspicuous consumption-oriented European luxury consumer, who also value great quality in luxury products (and Chinese-made products are known for lack of it).

Fighting the Stigma

There are some industry voices cheerfully claiming that today ‘made in China’ is perceived differently than 10 years ago, but it appears more of a wishful thinking. As of now, many Chinese brands still need to exhibit some European connection to get through to the luxury customer both in domestic and foreign markets. This might be a finishing touch added to the product in Europe or internationally-recognized celebrity endorsement (e.g. Angelina Jolie ‘being a fan’ of Shanghai Tang luxury brand). But this is far too little to break the stigma of the Chinese label.

Interestingly, some brands opted for a different approach to nurturing their brand culture. Instead of piggybacking the European luxury heritage, they are trying to highlight Chinese roots, rich tradition of great quality going way back to pre ‘made in China’ era as we know it. This might be a good way for brands to start building on, and execute very careful moves when creating brand based on the Chinese ancient heritage when expanding in foreign markets.

It still remains a long term perspective to see Chinese luxury brands becoming as influential as Prada, Gucci, LV, and other big names in the luxury arena. For the time being, most brands are likely to opt for associating their products with European luxury as a less risky way to win customer base. Only a handful of visionary Chinese brands will be able to put long term brand building ahead of short term gains.

It is worth keeping an eye on Chinese luxury brands, striving hard to win market presence internationally, but their path to success will be long and rocky.

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