Revenues Lower YOY Across the Sector Despite Price Hikes; Most Stores Struggle to Beat QTD Targets; Supply Problems Ease; Renewed Optimism Amid Vaccination Programmes

Footfall At Physical Stores Continued To Be Lower

• Our sources noticed that COVID restrictions and lower tourist activity continue to impact footfall over the past few months. Customers are continuing to shop online due to cost-savings and time efficiency. Demand for luxury goods has struggled as consumers stay confined and social events continue to remain limited. Supply constraints have also reduced choice for customers.

Average Customer Spend Rises Amid Reopening Optimism

• Store Managers cited the reopening of stores as a major boost for average customer spend, as pent-up demand causes customers to add more items to their basket. Luxury brands have been increasing prices to offset higher costs. Small rise in tourist activity contributes to higher spending, while limited collections continue to see strong demand.

Inventory Levels Mostly Flat Across Softline Luxury Goods Sector

• Stores have come to grips with longer shipment times and delays, and now have better information and knowledge to control inventory. Supply volatility has stabilised YOY. Digital sales allow inventory to continue turning over. However, inventory levels remain below pre-pandemic levels.

Prices Rise Across The Luxury Sector

• Luxury brands have continued to raise prices to make up for COVID-19 losses, lower supply levels and higher raw material costs, without much effect on demand. The availability of low-cost credit sways pricing decisions while inflation becomes very noticeable in the luxury sector. Volatile foreign exchange markets are also impacting prices.

Revenues Continue To Trend Lower As Stores Struggle To Beat QTD Targets

• Revenues have trended lower YOY across the sector as COVID restrictions and periodic store closures have impacted the operational capabilities of physical stores. Lower tourist activity has reduced the number of big spenders, while tax hikes have reduced demand. Consumer confidence continues to be low.

Store Costs And Margin Contributions Mostly Unchanged

• Our sources stated that store costs have remained stable YOY as measures taken after the first lockdown are identical to current measures. Luxury brands have not reduced staffing levels despite store closures. COVID safety costs are not contributing much to over-all margin contributions.

Luxury E-Commerce Sales Continue To Rise

• Periodic store closures and greater online integration in stores have boosted online sales. Brands continue to cater to younger consumers who are ‘digital natives’ and more likely to buy online. Better product availability and fast deliveries making e-commerce more attractive alternative to physical shopping.

Positive 6 Month Trading Outlook

• Store managers were optimistic about the trading outlook for the next 6 months, expecting restrictions to ease as vaccination levels rise. They also anticipate strong levels of pent-up demand and the return of tourists to boost sales.

Luxury Brands Target Younger Consumers

• Gen Z and Millennials are becoming the largest group of buyers in the luxury market, which means that luxury brands have needed to adapt their approach to deliver digital experiences, while adapting brand im-agine and their products to attract consciously minded younger con-sumers.

Greater Focus On Sustainability/ESG measures

• Failure to provide transparency documents and use of animal-sourced materials within products increasingly impact sales across the sector. Luxury brands seek to gain trust by improving brand image and changing designs to gain trust from conscious consumers.

The Rise of Resale in the Luxury Sector

• Resale value continues to become more important for the luxury buyer as consumers focus on affordability and sustainability. The durable and timeless nature of luxury goods makes items perfect for the re-sale market.

Accelerating Casualisation of Luxury Fashion

• While demand for casualwear and athleisure were already rising pre-COVID, the pandemic has caused demand for them to skyrocket. Casualisation is helping attract more younger consumers and increasing average customer spend as consumers are more likely to re-wear items. Brands are increasing their proportion of casualised items.

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