2.1 Global market: high base, steady growth and full resilience
In 2021, the global luxury goods market will reach $1.13 trillion, and the personal luxury goods market will account for 31%. The global luxury market has developed to a relatively mature stage, with a CAGR of 4.4% from 2011 to 2021. The outbreak of the novel coronavirus epidemic in 2020-2021 affected personal terminal consumption demand, accounting for 31.1% in 2021, a decrease of 2.3pct compared with the 19 years before the epidemic. From a structural point of view, high-end vehicles are the largest market, which has higher technical barriers and is more stable as a fixed asset, and its market share increased by 1.7pct to 53.0% in 2021. The share of experiential goods (mainly including high-end dining and high-end hotels) declined from 6% in 2019 to 3% in 2021, mainly due to restrictions on international tourism and business travel.
The growth rate of the personal luxury goods market in all regions of the world rebounded V-shaped, and the Asia-Pacific region was more resilient, with the market size reaching US $349.6 billion in 2021, recovering to 96% of that in 2019. The personal luxury goods market fell 17.5% in 2020, with Western Europe and North America down 22.2% and 23.6% respectively, while the Asia-Pacific region, especially the Chinese market, showed strong resilience, falling only 6.2% in 2020. In 2021, the revenue share of Hermes, Richemont, Kering and LVMH in the Asia-Pacific (excluding Japan) region reached 47%, 45%, 38% and 35%, respectively, an increase of 12pct, 8pct, 11pct and 7pct compared with 2017. Revenue increased by 64%, 13%, 24% and 38% in 19 years, respectively, leading to a strong recovery in performance.
SKU streamlined, high customer unit price category brand concentration is high, leather > jewelry > Cosmetics > Clothing shoes. Luxury goods can be divided into soft luxury and hard luxury, the former mainly includes fragrance and bags, the latter mainly includes watches and jewelry. Leather goods will be the largest and fastest growing category in the personal luxury market, with a CAGR of 6.51% from 2016 to 2021. Clothing and cosmetics are two segments with relatively fierce competition due to small barriers to entry in the industry, with a CR5 of 16.4% and 26.9% respectively, while jewelry and leather goods can form strong barriers in procurement, brand and sales channels due to the scarcity of upstream raw materials, complex production process and long cycle, and limited production capacity. The market pattern is highly concentrated, with CR5 accounting for 40.6% and 46.8% respectively.
2.2 Chinese market: Overseas consumption return, the main engine of global growth
Overseas high-end consumption has returned, and the growth rate of personal luxury goods in China has accelerated. Under the background of the double cycle policy and the inhibition of outbound tourism, overseas high-end consumption has returned, and the scale of China's personal luxury goods market in 2021 has reached 379.9 billion yuan, an increase of 38.4% year-on-year. Bain estimates that domestic luxury goods consumption will account for 96% in 2021. Domestic luxury shopping malls bucked the trend, with sales growth of 40% and 31% in 2021 for Beijing SKP and Beijing International Trade.
The Chinese market is dominated by foreign brands, with jewellery and leather goods being the fastest growing categories. The pattern of China's luxury industry is stable, the strong are always strong, and the market share of the top three groups LVMH, Richemont and Kering continues to increase, with CR3 reaching 34.2% in 2020. By brand, the market share of the top five brands in 2020 is 7.4% (LV), 5.8% (Chanel), 4.8% (Cartier), 4.3% (Gucci) and 3.0% (Hermes). From the category point of view, leather goods and clothing mainly, accounting for 28.6%, 19.4%. Jewelry and leather goods led the growth of the Chinese luxury market, with sales increasing 53.8% and 45.7% year-on-year in 2021, respectively.
2.3 Future growth: new consumer groups and new channels
2.3.1 The generational change of consumers provides new momentum for growth
In China's domestic luxury market in 2021, the post-90s group will account for 50% and contribute 46% of sales revenue. In the incremental market, the post-90s accounted for 59%, and the annual consumption of less than 50,000 yuan accounted for 50%. "Social" has a significant impact on the purchase decisions of the new generation of consumers, who are self-aware and driven by their social circle, and will not only refer to the reviews of products on social networks, but also consider the word-of-mouth recommendations of friends around them, while mature consumers have higher expectations for the products and services of luxury brands.
The post-90s group has led China's luxury goods market to enter a period of rapid development, with an obvious quantity of fragrance categories, and steady growth of leather goods and jewelry. In the early stage of the development of the luxury market, the market penetration rate of conspicuous clothing, jewelry and leather goods is the highest, mainly meeting the needs of luxury consumers. With the rise of a country's economy, the scale of mass luxury consumers is growing rapidly, and the perfume category, as the entry-level luxury goods, begins to increase. At present, Japan's per capita GDP has exceeded 40,000 US dollars, the luxury market is mature, and the market share of ready-made clothing is gradually declining, while leather goods are still growing relatively steadily. China's per capita GDP is still rising rapidly, and fragrance products are rapidly penetrating, with a market share of 15.4% in 2021, an increase of 9.6% over 2007. (Report source: Future Think Tank)
2.3.2 Digital transformation is accelerating, and the layout of e-commerce and NFT is just in time
The epidemic has accelerated the digital transformation of head brands, and the core is to accumulate awareness of online models and Chinese consumers. The brand is still focused on wechat mini program, as the core channel of brand self-management, wechat fission and offline store customer base operation is the main user source of wechat mini program. Price regulation and drainage product strategy are parallel, and the user LTV is improved by cross strategy. The top luxury brands will accelerate their entry into the luxury goods channel on Tmall from 2020 to 2021. Luxury brands show two major characteristics in category layout: 1) Luxury brands, such as LV, Hermes, Chanel and Dior, only layout fragrance products on the e-commerce platform, and the main leather goods category is not entered; 2) The category layout is mainly based on the flow products with low customer price, including jewelry, jewelry, watches, glasses, sneakers in shoes, street wear in ready-to-wear, etc. By increasing the category and selection of "entry-level" products, a wide range of users are attracted to ensure comprehensive pricing coverage and the richness of product price gradients. After the purchase behavior occurs, the cross-selling strategy guides users to buy finished products with more expensive unit price to fully dig the LTV of users.
The category layout of brands in different channels is different: 1) Tmall Luxury products, with its core advantages of large traffic pool and operation supporting facilities, dominates the e-commerce channel, and the category layout is mainly makeup and clothing. At present, the e-commerce channels are represented by Tmall luxury goods, JD and Farfetch, among which Tmall is the core channel of luxury goods layout. Currently, more than 200 luxury brands have entered the channel, mainly targeting low-tier cities and entry-level consumers without offline stores. The customer base is mainly post-90s mild customers, and the customer unit price is relatively low. The core purpose of the brand's entry into Tmall luxury is: (1) to expand customer demand for cosmetics; ② Fancy Tmall traffic, especially young users aged 20-30; (3) The brand's own natural traffic growth has slowed down, and it needs to be diverted from the third party platform to the self-operated channel. 2) Farfetch is more oriented to fashion leaders, with a high commission rate and high bargaining power for niche brands. Different from Tmall luxury products, Farfetch has more niche brands, such as Off-White, which provides a purchasing platform for trendholders in terms of brand breadth and product richness. Farfetch has extremely high bargaining power for niche brands, with a 30% commission. Vertical e-commerce platform and traditional e-commerce platform are gradually integrated to expand the scope of customer base. In March, 21, Farfetch announced its entry into Tmall luxury products. The 800 million retail customers targeted by Tmall platform brought user increase to Farfetch. 3) JD Luxury: With the release of anti-monopoly regulations in September 2021, luxury brands can cooperate with platforms such as Tmall and JD.com at the same time. Jd.com's main strategy is to work with major luxury brands to create mini programs that guide consumers to the brands' official websites. LVMH's beauty brands Guerlain and Givenchy opened flagship stores on JD.com in 21 years.
Better reach young consumers and male consumers, blockchain technology brings the uniqueness of NFT, in line with luxury characteristics. NFT transaction volume reached $1.07 billion in August 2021, of which art collectibles and NFT games accounted for 84.8% and 15.2%, respectively, but in terms of transaction volume, the game transaction volume was high but the single transaction amount was low. Scarcity and ownership transparency and fidelity promote the iterative upgrading of the NFT market, and the NFT items or collectibles that are first issued in the blockchain game have uniqueness or scarcity; Based on the blockchain public chain attribute, every transaction in the NFT market relies on an anonymous decentralized public chain. Luxury goods + digital art collection/meta-universe Game as The main form, such as LV in the 200th anniversary, launched the NFT game "Louis: The Game", which contains limited 30 digital collection; Balenciaga has teamed up with online gaming company Fortnite to launch Afterworld, a game where players can buy co-branded skins and billboards.
2.3.3 Policies to guide the return of consumption, tax exemption ushered in channel dividends
The policy is favorable to release the channel dividend, and the duty-free islands have become an important channel for luxury sales. China imposes import duty, consumption tax and value-added tax on luxury goods, the tax rate is usually between 20% and 55%, the duty-free policy of the offshore islands to release the industry dividend, fragrance, watches, jewelry and other categories as an important category of duty-free channels, to achieve rapid growth. Duty-free sales on Hainan's outlying islands totaled 49.5 billion yuan in 2021, an increase of 80% year-on-year, accounting for 13% of China's luxury goods market. In 21 years, the number of duty-free shopping trips on the outlying islands was 6.72 million, an increase of 50% year-on-year, and the penetration rate showed an upward trend.
Import tax rates have been lowered, the price gap between domestic and foreign countries has narrowed, and the core variables of consumption return have been accurately grasped. In terms of tariffs, in June 2015, the import tariff rate of some clothing, shoes, skin care products and other daily consumer goods was reduced by more than 50% on average; In December 2017, import tariffs on some consumer goods were lowered, with the average rate reduced from 17.3% to 7.7%. In July 2018, the average import tariff rate of clothing, shoes and hats under daily consumer goods was reduced from 15.9% to 7.1%, and the average import tariff rate of cosmetics such as skin care and hairdressing products and some medical, pharmaceutical and health products was reduced from 8.4% to 2.9%. In terms of consumption tax, the consumption tax on cosmetic imports was lowered from 30% to 15% in October 2016. In terms of value-added tax, the VAT was lowered in April 2019, and the VAT rate for imported goods was adjusted from 16% to 13% and from 10% to 9%.
Based on high-turnover fragrant brands, Hainan Island duty-free shops have higher floor efficiency than high-tax luxury shopping malls, and there is still room for 0.3-2.5 times improvement in standard Korean free. In terms of flat efficiency, the flat efficiency of duty-free shops in South Korea will reach 520-1.24 million yuan/square meter in 2021 (up to 800,000 to 2.4 million yuan/square meter before the epidemic), while the flat efficiency of Sanya Haitangwan duty-free shops will reach 350,000 yuan/square meter, higher than that of SKP in Beijing and Henglong in Shanghai. Up to now, the number of Sanya International duty-Free City Xianghua, luggage clothing shoes and boots, watches and jewelry brands has increased from 39, 39, 22 at the beginning of the opening to 145, 76, 68, compared with Beijing SKP, Xianghua brand is only 35. Xianghua brand operating area is smaller than fashion jewelry, wrist skin and other categories, ping effect has a natural advantage.
