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Why Are Luxury Goods Under Inflationary Pressure Rising Prices

2022/5/17 14:00:00 0

Luxury Goods

"My God, Hermes is going up again."

A piece of news has been printed in the eyes of carrier, which means that the cost of her "eating local bags" will increase a lot next time.

Hermes's chief financial officer said the company had raised prices by an average of 3.5% at the beginning of this year under inflationary pressure, and may raise jewelry and watch prices in the middle of the year to offset the rise in precious metal costs.

In the sound of price increase, Hermes group released the company's first quarter of 2022 on April 4. At the fixed exchange rate, the company's first quarter revenue growth of 27%, far more than analysts had predicted 15%, the price rise into profits.

In recent years, Chanel, Louis Vuitton, Rolex and other top international brands have gone hand in hand as if they had reached a tacit agreement, and the luxury industry has started a new round of price rise. Inflation is only one factor. In fact, luxury brands always have the mechanism of increasing prices every year. Take Louis Vuitton as an example, the frequency of price increases is about 2-3 times a year.

While consumers are not surprised by the regular price increase of luxury goods, luxury brands are well aware that behind the price increase, they must show enough confidence.

So, where is the confidence of luxury price rising? Is it just the "Immortality" of several classic models? What is the new industry trend? What kind of unconventional vitality will traditional luxury brands radiate in the new era?

   New normal: reasonable price increase

   Just as a person needs human equipment, goods also need product design. For a long time, they have been called luxury goods because they never worry about selling them, and because there is no word "price reduction" in its dictionary. The luxury industry has been rising and buying all the time. The more you buy, the more you buy, the more you buy, and the more you buy, the more you buy, the more you buy, the more you buy, and the more you buy, the "new normal" is formed.

According to the report "ten financial packages of 2021" released by koala shopping, since last year, most luxury bags have increased by 5% - 20%, with the highest increase of 95%. According to a UBS report earlier this year, the average price increase of leading luxury brands such as Louis Vuitton has been 2.5 times the inflation rate in the past 20 years.

As a result, many consumers even hold the view of "buy early, enjoy early" and "buy early is to save money" to consume luxury goods, and the saying that buying a bag is equal to financing has been rampant for a time.

   When consumers consider how to choose a "financial package", luxury brands think about how to "filter" customers.

Recently, LVMH group (LVMH, LVMH's parent company) the minutes of the conference call among senior executives in Greater China have been circulated among the public, causing a heated discussion.

In the minutes of the meeting, LVMH group divided its customers into three categories: the first group is the ultra-high net worth group, which refers to the individuals with an annual income of more than 10 million yuan or a family with an annual income of more than 30 million yuan; The second category is the high net worth group, which refers to the people whose annual personal income is between 3 million yuan and 10 million yuan or whose family income is between 10 million yuan and 30 million yuan; In addition to the above two categories, it is called the third category, that is, the non income group.

At the same time, the minutes pointed out that the epidemic situation in more than two years has changed the structure of customers and further widened the gap between the rich and the poor, which directly led to the increase in the number and purchase of ultra-high net worth customers.

For this reason, LVMH group, on the one hand, intends to close its strategy to the needs of ultra-high net worth customers and continue to make efforts in the high-end line; On the other hand, it plans to continue to raise the price of "entry-level" packages, so as to eliminate the decreasing non revenue customer base.

Research data can also support LVMH group's choice. The VIP Research Institute divides luxury customer groups into core consumers and mass consumers, which is similar to LVMH group's customer division method. Core consumers refer to customers with personal net assets of more than 10 million yuan, and their insensitive unit price of luxury goods online is less than 30000 yuan; And the insensitivity unit price of mass consumer online is only 3000 yuan, one tenth of the former.

Such a comparison has been further amplified in the context of the epidemic for more than two years. There is no doubt that even if they buy luxury goods once again, they will not be impacted by the desire of middle-income people to buy luxury goods again.

In contrast, the assets of high net worth people are "rock without transfer" under the erosion of the epidemic, and luxury goods are still their standard configuration and just need. Some of them are even happy with the price increase, because it means that the stock they bought has gone up.

You can get it if you give it up. At first glance, LVMH group's strategy of abandoning some customers is somewhat cold-blooded, but from the perspective of brand, it is only "single-minded" for more profits.

   New technology: blockchain revolution

Although luxury goods are cold-blooded in customer selection, they are not always ungrounded.

In order to open up new territory, luxury brands on the tall have moved their positions to the line of slightly civilian.

With the advantages of convenience and rapidity, the development of online business can undoubtedly radiate luxury goods to a wider range of people. Especially in the new environment of normalization of epidemic prevention and control, the frequency of people going abroad for travel and shopping has dropped sharply, which has accelerated the formation of online luxury shopping trend.

In 2020, the online sales of luxury brands in the Chinese market will increase by 88%, reaching US $14.1 billion, and the market share will also reach 21%.

In 2021, online sales of China's luxury goods industry will further develop at a high speed, with a growth rate of 75%, reaching US $24.7 billion, accounting for 26% of the sales volume of luxury goods in China.

Moreover, the VIP Research Institute also predicts that in the next 3-5 years, the online sales order rate may reach 80%, and the luxury industry will usher in a new era of online king.

Of course, buying luxury goods online is not without its drawbacks. As a product with high brand premium, most consumers need to enjoy the luxury experience matching the price when buying luxury goods. In this regard, online e-commerce can not be compared with offline stores for the time being. One of the most important factors is that consumers generally do not have enough trust to buy luxury goods online.

What do consumers fear most when they buy luxury goods? Buying fake goods must be the first to bear the brunt.

It is not only consumers, but also the problem of fake goods that breaks the heart of the brand side. A luxury bag, its raw materials and various parts may come from all over the world. The global supply chain means that it is difficult for both the brand and the consumer to monitor the material source and production process of the final product.

In other words, not only can fake goods be completely eliminated, but also there will be flaws in production efficiency and quality control.

This problem is expected to be cured in the future. Because the blockchain is coming.

On April 20, LVMH group and Cartier's parent company, Swiss luxury group Richemont, announced in a joint statement that they would jointly establish aura, the world's first luxury blockchain. The platform is expected to provide consumers with verification and traceability services for all luxury brand products.

The biggest feature of blockchain technology is decentralization. To make an image analogy, blockchain is essentially an open account book, which can ensure complete transparency from the beginning to the end.

Once the data is on the chain, it can not be tampered with, thus forming a completely trusted chain network. This function is a precise attack on the pain points of luxury jewelry industry.

   Once the blockchain technology is fully mature, it can track production, procurement, sales and other supply chain links in the future to achieve direct traceability and accurate effect, which creates a permanent and immutable record for all materials used in the production process.

After digitizing one item and one code of luxury goods, the unique corresponding identity information will be stored in the blockchain network, and then one-to-one correspondence will be carried out through the unique digital signature of the blockchain.

Consumers can easily identify the authenticity of luxury goods, and they don't have to worry about buying fake goods any more. Blockchain technology will be a great revolution for both brands and consumers.

According to Toni belloni, managing director of LVMH group, blockchain is a great opportunity for the luxury industry, which can provide customers with simple solutions to better understand the products, so as to strengthen the relationship between brands and customers. He wants other luxury manufacturers to join in, "by working with other luxury brands, we are leading the way in transparency and traceability."

In fact, not only in the first-hand market of luxury goods, the use of blockchain can also make the resale of second-hand luxury goods more smooth and comfortable. Similarly, blockchain can also be applied to other commodities such as wine, enabling more industries to develop science and technology.

   New experience: the light of the meta universe

In addition to the blockchain, the revolution of new technology also brings its brother: meta universe.

When it comes to the metauniverse, we must first introduce NFT.

NFT, the full name of non functional token, refers to non homogeneous token, which is used to represent digital assets A unique cryptocurrency token (including JPG and video clips) that can be traded.

In 2021, NFT became popular in the field of digital art, and was selected as the first hot word in Collins dictionary in 2021.

In 2021, the first year of the universe, luxury brands have launched their NFT products in a hurry.

Virtual Gucci launched its first sports shoes in April; In May, the virtual fashion platform rtfkt completed a new round of $8 million in financing, and the co branded fashion shoes launched by artists were also hot and sold out.

Gucci's first virtual sneaker Gucci virtual 25

Are consumers willing to pay for the virtual world?

Among them, let NFT products inherit the scarcity and brand connotation of luxury goods, increase the collection value and appreciation attribute, so as to obtain the recognition of consumers.

During the Beijing Winter Olympic Games, the International Olympic Committee officially sold the ice pier digital blind box, limited to 500. As a result, three days after the sale, the price of the series of blind boxes soared, with an increase of 5-20 times.

According to Morgan Stanley's forecast, virtual goods will generate $50 billion in additional revenue for the luxury fashion industry in 2030. NFT and social games are expected to expand the luxury group's potential market by more than 10% in eight years, and drive the industry's EBIT growth of about 25%.

In addition to direct revenue growth. As an online industry, yuancosmos can also greatly increase the interaction between brands and consumers, and improve the consumption experience of people including generation Z. Isn't it the classic strategy of luxury marketing to transform the process of consumption into the process of enjoyment?

Not long ago, the world's first "meta universe Fashion Week" was held on the virtual world platform decentraland. More than 60 international brands including Forever 21, Tommy Hilfiger and Estee Lauder participated in the event.

In traditional offline fashion week, only stars and bloggers who have received the invitation letter from the brand side are eligible to enter the show, while the "meta universe Fashion Week" is free for all users. Sitting in front of the computer, you can get close access to the latest works brought by top designers by using your fingers, or even bind your wallet, You can buy the latest virtual and physical clothing.

For example, you only need to spend 20 mana (decentraland token, about $50) to buy a Tommy Hilfiger jacket for your avatar.

Bulova, a watch maker, has teamed up with d-cave to launch a new version of its iconic computrom watch, which has wearable virtual and physical versions for visitors to buy, and the physical Standard Version costs $450.

Whether it is virtual goods or physical goods, every "immersive" user can find his own cup of tea in the cyberworld.

In addition, after the fashion show, the audience can also experience the "meta universe concert" brought by several dancers and DJ singers.

Today, in addition to NFT products, brands have also extended the industry to the magic weapon of the meta universe - Games.

Louis Vuitton has launched the mobile game Louis: the game. The use of the latest NFT blockchain technology, a collection of the latest significance. In the process of playing the game, players will learn brand stories such as family history, art creation, fashion show, etc., so as to have a deeper understanding of the cultural connotation of Louis Vuitton.

Commodity is a kind of carrier. Excellent commodity can transform the inspiration injected by creators into the desire of consumers to buy. Over the past hundred years, luxury has achieved this. It is precisely because of the inheritance of excellent products that the brand has the confidence to keep rising prices.

Now, luxury goods have added a new weight to this confidence. Blockchain, meta universe, these new technologies give commodities a brand-new medium. They are not traditional at all and full of vitality.

In the future, the luxury industry will walk between the tradition and the new trend, and the classic glory of the creator will continue to shine in the halo of emerging technology.

It has to be said that this wave of technology investment in luxury goods is in place.

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