Elizabeth Paton (Balliol, 2006), European Styles Correspondent at the New York Times, explains how the luxury sector will face a struggle to recapture hearts, minds and wallets this year.

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All that glitters: big hitters will need to balance innovation and brand heritage to tempt customers in 2016

by Elizabeth Paton (Balliol, 2006)

The luxury sector is losing its lustre. Following several boom years in the wake of the financial crisis, a cocktail of wavering Asian consumer enthusiasm, currency headwinds and geopolitical instability has triggered a sharp sales slowdown, taking a heavy toll on some of the biggest names in the global luxury industry in 2015.
 
In December Italian fashion house Prada posted a 38 percent fall in quarterly profit, which it blamed on slumping sales in Greater China fuelled by the deceleration of the country's economy and a weakened yuan. A Chinese government campaign - now in its third year -  to crack down on expensive gift-giving, stuttering demand in Hong Kong and the lifting of the Swiss franc cap in January combined to hit Swiss watchmakers like Richemont both at home and abroad. And following the Paris terrorist attacks in November that horrified the Western world, analysts estimated a sales tumble of up to 30 per cent in the final quarter of 2015, as frightened shoppers stayed away from one of the world’s most important luxury capitals.shopping
Looking eastwards: A Chinese government campaign to crack down on expensive gift-giving is taking its toll
 
With wealthy consumer tastes broadly maturing away from logo-heavy product and status spending towards a more understated or individual aesthetic, it was of little surprise when recent research published by Bain & Company suggested that  the global market for luxury personal goods in 2015 was heading for its weakest year since 2009.  
 
But what lies on the horizon in the twelve months ahead? The outlook for the global industry in 2016 is better - but not by much, with many of the trends above continuing to impact on top and bottom lines well into the new year.
 
The great fall in China has led larger companies like Louis Vuitton and Burberry to downsize some retail stores and shut others - this will continue in the new year and others will follow suit in a bid to reduce losses. Meanwhile the battle for hearts, minds and wallets of shoppers will continue apace online, where luxury brands have finally begun to invest significantly in their e-commerce operations, years behind more savvy mass-market rivals. 
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Slump: Prada posted a 38 percent fall in quarterly profit, which it blamed on Greater China sales
 
These strategic changes of gear show that the roaming global traveller, rather than any one specific region or consumer nationality, will be the focus for brands moving ahead. Despite the Paris terror attacks, a weak – and potentially even weaker – euro in 2016 will offset some of the pain for European luxury groups, and add greater incentives for wealthy tourists to visit eurozone countries over the US and UK where the dollar and pound are expected to remain strong.
 
But the expectation is also that sales to Chinese tourists in Asia will surge as increasing numbers choose short-haul destinations to shop, thanks to convenience, ease of access, safety concerns and limited vacation time. Despite two luxury tariff cuts designed to boost Chinese domestic spending by slashing price differentiations with outside markets, nearby countries like Japan and South Korea proved star luxury performers in 2015 with a substantial chunk of sales growth driven by Chinese shoppers. Bain now predicts that less than 20 per cent of luxury sales by Chinese in 2016 will be made at home.
 
Developed markets will continue to outperform emerging markets, with American and German purchasing power continuing to be major sales drivers across regions in the year ahead; on the other hand Russian and Brazilian spending - once so lauded by the  luxury brands - will continue to contract.

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Broadening horizons: many old guard brands are partnering up with fashionable businesses for millenial appeal  
Meanwhile, all companies will be looking at new ways to find a balance between ubiquity and exclusivity as a next generation of luxury customers approach luxury in terms of experience, travel and technology over product and price tag. Today, one in four Millennials would rather pay money for an experience rather than a product, according to trends forecasting agency FutureCast. 

Food, wine, art and hospitality are widely seen as the most lucrative current sectors, with many old guard brands clamouring to make partnerships in the space. Labels like Bulgari and Tag Heuer will be rolling out smart watches, and numerous fashion brands have said they will be incorporating wearable technology into their clothing collections or launching virtual reality fitting rooms.
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Bucking the trend: luxury brands will have to be more competitive than ever this year to reverse their slump
 
The skill with which global luxury companies navigate and prepare for ongoing global economic and sociopolitical volatility, harness innovation while maintaining brand heritage, and maintain consumer loyalty in an ever more competitive climate will mark the winners from the losers in 2016, with the stakes higher than in any year before.
 
Elizabeth Paton is European Styles Correspondent for the New York Times. 

Comments

By RH Findlay (SEH...
on

I rather think life will be even more bumper for those not in the "luxury" class and perhaps worse than bumpy, even rocky, for the estimated 60 million refugees roaming the world..............Must be tough running a global company dealing in luxury as the refugee crisis means that at least 60 million people are no longer in the market...........Think of that lost purchsaing power!

By Jing Zhang
on

Fabulous!

By Carmen Luz Adri...
on

im interesred in you

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