LONDON — It’s time for luxury to make do and mend — as World War II Britons would say — and rely on its wits and existing resources to survive increasing uncertainty in the months to come.
Even as high-end demand begins to show signs of recovery, there are still battles still to be fought and one fundamental problem: Too much stuff, not enough demand.
Consolidation will be the great aspiration of brands, retailers, designers and showrooms. Larger, more mature businesses in particular will have to examine their budgets and strategies as the sands of consumer demand continue to shift amid geopolitical and economic uncertainty.
No one knows what Brexit negotiations will mean for Britain or the sort of leaders France and Germany will elect in the coming year. Hong Kong — once a boomtown for luxury brands — is fast becoming a ghost town, while the high-end watch industry continues to struggle. And the threat of terrorism is ever-present.
“The big, big question will be about spending,” said Avery Booker, cofounder and chief executive officer of Enflux, a London-based company that monitors consumer data and behavior.
In particular, he said, brands and retailers will be looking at how to consolidate their retail networks and online social presence. “A lot of them have wasted so much money, throwing it at the wrong things,” such as splashy events, celebrities and influencers who fail to deliver a return on investment.
Mario Ortelli of Bernstein Research has pointed to the “potential for deterioration” in the underlying economic fundamentals that support luxury sector growth, especially against the backdrop of political uncertainty.
In the personal luxury market, Ortelli is forecasting 0 percent growth for 2016; 2 percent for 2017, and 4 percent thereafter to 2020, with the “potential for year-over-year volatility,” due to macroeconomic uncertainty.
What to do?
For starters, brands are doubling down, showing men’s and women’s together on the catwalk. It’s cheaper, easier and allows buyers to write their orders earlier in the season. Burberry, Tom Ford, Dsquared and Thom Browne kicked off the trend, with Gucci, Paul Smith, Kenzo and others set to follow in 2017.
The Kering brands, meanwhile, are making their stores work harder. “We are present today in the most important cities and locations in the world,” said Kering chief executive officer François-Henri Pinault. “Our priority is to extract more value from them.”
According to a report by Ortelli and Boston Consulting Group, “tier 2” cities — such as Washington, D.C. — and “marginal” areas will see the most closures or store resizing from fashion and luxury groups.
Burberry is focusing on local consumers rather than fickle tourists, while other brands are putting a greater emphasis on omnichannel and alternative retail formats as they expand into new markets.
Selene Collins, who specializes in sales and strategy for fashion brands at her London showroom, said pop-up culture will remain strong, because it’s a low-risk approach for retailers and allows for more direct interaction for the consumer.
On a similar note, she said Selfridges Designer Studio is a window onto the future of retail. “It’s a free-moving, organic environment — a mix of contemporary, street and designer, with anchor brands like Christopher Kane, Vetements and J.W. Anderson. It’s the Dover Street Market model,” she said.
Inspired by a contemporary art space, the new Designer Studio showcases men’s and women’s wear side-by-side; highlights items rather than brands, and changes its special configuration every season. It opened in July and is part of an ongoing, multimillion-dollar revamp of the store.
Collins is also a big believer in another trend that’s taking fashion and luxury by the throat: Instant fashion. “People are not investing at the beginning of a season. We’re an instant culture — we’re Uber, Deliveroo — buy-now-wear-now. The business is getting faster and faster.”
The luxury watch industry, meanwhile, is facing its own set of woes as it readjusts to lower levels of demand, higher input costs, a Chinese crackdown on gifting and import duties for big-spending tourists returning home to China. After a tough year of buying back watches from its wholesale clients, and two rounds of layoffs at Cartier, Gary Saage, chief financial officer of Compagnie Financière Richemont, said the company is adjusting to the new normal for the watch business.
“Before the gifting explosion in China, we were seeing modest growth in watches. We don’t know where sales are going to be in the future, but we can no longer expect a return to growth of 20-odd percent,” he said.
Although the year-on-year decline in watch exports appears to be slowing, the light at the end of that particular tunnel remains a pinprick.
According to analysts, watch prices in the new year will remain flat and inventory buybacks are in the cards, although volumes are set to edge up.
Ortelli calls the outlook “subdued,” while Thomas Chauvet of Citi said the mood remains cautious among watch retailers globally given all the political uncertainty, travel fears, depressed oil prices and stock market and foreign exchange volatility.
A year, then, for a quiet reboot.