• Olivier Moingeon

W47 - Gucci, Bain, Coty, Farfetch, Hublot.. and more!

1. Bain & Altagamma Report

2. Gucci-Fest

3. Farfetch expands its pre-owned business

4. Coty's stock upgraded to "Buy"

5. Simon pilots concierge returns

6. Macy's Earnings

7. L Brands Earnings

8. Hublot's innovation

9. Google Pay

10. Instagram's new homepage

One Consulting firm Bain and the Altagamma foundation released their highly anticipated state of Luxury report this week. Here are the key takeaways:

The personal luxury goods market is expected to contract by around 25% in 2020 vs last year. Most luxury executives don’t expect revenues to return to pre-pandemic levels before the second half of 2022. If we look at the luxury hospitality sector, it will decrease by an estimated 55 to 65% this year and is not expected to go back to pre-pandemic levels before at least 2024.

However, there is one clear winner in this gloomy picture: China. It is the only region expected to register a positive performance in 2020 with an astounding +45% increase YoY. In contrast, The Americas region is estimated to contract by 27% and Europe by 36%. Today, China is the second biggest market for luxury after the Americas. However, it is on track to become the #1 market by 2025. Chinese clients are expected to account for 50% of the luxury market in 2025.

So, what is driving the road to recovery? The main 3 factors are Digitalization, China and the Gen Z shoppers.

Regarding the digitalization of the luxury industry, luxury online shopping has already doubled since 2019 and the technological acceleration over the past 212 months is equivalent to what analysts predicted would take 5 years to accomplish. This trend will only accelerate and Bain predicts that eCommerce will become the biggest channel channel for luxury spending by 2025.

The second trend is localization, especially driven by Chinese consumers who are no longer traveling and are rather spending lavishly in their home country. This repatriation trend is expected to last as brands are strengthening their offers and penetration in China. Bain calls it a general rebalancing of the luxury market, which will impact distribution networks and ecosystems.

The 3rd trend is the generational shift, with younger generations expected to drive the growth of the next 5 years, especially Gen Z. It is imperative for brands to adapt to the expectations of this audience, not only in terms of product offers and distribution channels, but also on brand values and postu re about social and environmental issues.

Finally, with Thanksgiving around the corner, Bain predicts that worldwide Q4 sales will be down by 12% and if we look at 2021, the luxury market is expected to grow by 10 to 20% vs 2020.

Two. This week Gucci held the highly anticipated Gucci-Fest, which was a week-long movie festival and basically their new version of a fashion show.

For context, Gucci’s star designer, Allessandro Michele announced last May, in the middle of the Pandemic, that Gucci would stop doing 5 shows per year and instead only hold 2 annual events, combining women and men’s and that the collections would be seasonless. Regarding the format, Gucci said at the time that they would do whatever they want !

Michele collaborated with legendary director Gus Van Sant to create a 7-day long film festival, broadcasted on Gucci’s youtube channel. Short films were dropped every day, which created a continuous excitement and media coverage. Actors wore Gucci’s collections, but not only that. The festival was the opportunity to feature 15 up and coming designers from around the world who displayed their collections in short movies which they directed.

Why does it matter? The Covid crisis forced every designer and brand executive to rethink the fashion show cycle and formats. The Paris september fashion week saw a decrease in attendance, but shows were livestreamed and garnered more than 135 million views on youtube. With a 7-day long festival format, Gucci takes control of 3 dimensions: location, time and duration. The day-1 movie has already been viewed more than 1.5 million times on Youtube. The creativity and production behind each short movie creates an enthusiasm and appeal beyond the world of fashion. Products featured in real life scenes also allow for a better customer’s visualisation and connection. Finally, the daily drop creates a continuous excitement and media coverage, with Vogue Runway, amongst others, publishing a daily article to review the latest short film. We will eagerly wait for official feedback on the performance of this initiative.

Three. Farfetch launched their handbag resale service to the US. It is called Second Life and it allows users to trade in their handbags for Farfetch credits to be used on the platform for future purchases. Second Life was started as a pilot in May 2019 before being rolled out in the UK and European markets. Farfetch will gradually launch the service throughout the world and they will extend to more categories than handbags.

Why does it matter? Farfetch is achieving 2 strategic objectives. First of all, by adding this new vertical, they expect to grab market share in the fast growing pre-owned market, which is expected to more than double by 2025 to reach 64 billion dollars. By leveraging their technological advances and their 2.7 million active customer base, Farfetch has the ambition to roll-out Second Life in all their regions and become a significant player in the resale economy. The 2nd strategic objective is around circular economy. In fact, Second Life is part of an overall sustainability initiative called “Positively Farfetch”, which includes various impact programs, such as listing conscious products, offering climate conscious delivery services or launching a donation program in partnership with Thrift+. To summarize, Farfetch, like many others, is actively pursuing 2 important trends: re-commerce and sustainability.

Four. In beauty, Coty saw its shares increase by 17% following a series of positive announcements. It started with chairman Peter Harf investing 150m of his personal fortune into the stock. The group then announced that it was focusing on growth, improving margins and deleveraging its balance sheet through a few strategic moves. First of all, it will sell its Wella salon business to KKR for 2.5 billion, which will help pay down its debts. Then, it is focusing on its cosmetics business, especially through the Kardashian’s franchise, where it owns 20% stakes in Kim’s beauty business and a majority stake in Kyle Cosmetics. Sales recovery from the pandemic accelerated faster than expected, especially in the online channels, which boosted confidence in the new management team. Finally, Coty posted a profit last quarter, for the first time in 1 year. With things looking brighter at Coty, the stock was upgraded from neutral to buy.

Five. Simon properties is partnering with the product return company Narvar, to run a pilot at some of its shopping centers. pilot accepting returns from some brands at their concierge desks at a few select locations. The process is really easy, done through QR code at at minimum friction for customers. With the increase in online shopping, returns this holiday season are expected to reach an astounding $280 billion level, putting a lot of stress on logistics and management. Amazon is already partnering with Kohl’s, where clients can drop their Amazon returns at hundreds of Kohl’s department stores. We also see more and more pop-up kiosks at various convenience stores such as Walgreens to accept third party returns.

Six. Macy’s also released their quarterly earnings report this week. They posted a 20% decline in comp sales this quarter be same period last year and are bracing for a difficult holiday season, with a decline also in the mid 20% range and higher logistics expenses due to online shopping. Macy’s also reshuffle their merchandising, adding new brands and products in over performing categories such as loungewear and home.

Seven. L Brands, the owner of Victoria Secrets and Bath and Body Works released their 3rd quarter results. Overall performance improved across its brands with a net income of $330m, as opposed to a loss in the previous quarter. Revenue improved by 14% vs the same quarter last year. Comp sales increased 28%. Bath and body works were the number one growth driver but Victoria secrets also saw an improvement with +4% vs same period last year.

Eight. A few interesting initiatives in the watch industry this week:

Hublot announced the launch of an e-warranty. The technology has been developed in partnership with KerQuest. It works as follows: the watch is photographed at the manufacture to establish its digital passport. The technology is able to identify the microstructure making that watch unique vs other watches of the same model. When sold, the e-warranty is activated on the point of sales and then sent to the client through their digital channel of choice (whatsapp, email, sms, wechat, etc). The warranty is stored in the AURA blockchain.

This is a trend to follow, and we can expect more adoption of these digital authentication technologies. Breitling and Vacheron Constantin have already partnered with the French company Arianee, to produce digital passports for their watches, which are then stored in the blockchain. Finally,

Nine. In big tech, an important announcement was made this week with a massive reboot of Google Pay app, for Android and IOS. The app is basically unifying multiple money management services and competes with a dozen companies such as PayPal, Venmo, mint, or intuit. Besides paying at stores or paying your friends, the app allows to scan barcodes which will automatically look for deals on hat item on Google shopping. Google will also go into banking by partnering with banks to allow users to

manage their accounts from Google pay. While it is not directly linked to luxury, the move to a unified app is reminiscent of Wechat. It is a long way until there would be a Wechat equivalent outside of China, I am very curious to keep an eye on the evolution of Google Pay.

Still in tech, Instagram changed their homepage layout, where the shopping button is prominently featured, as well as the Reel button, reminiscent of Tik Tok’s feature. This move indicates the push towards commerce, which has clearly become a strategic objective for Facebook and Insta. Regarding Insta reels, this is a clear move to compete with Tik Tok. This new instagram layout has been received with mixed reviews, as it makes it more difficult to accomplish certain tasks, while making Shopping and Reel much more prominent.

Ten. Rolex announced the opening of its largest showroom in the United States. The 4,600 sq ft store will open at Longs Jeweler in Boston on time for the holiday season.

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