Via: jingdaily.com
Luxury’s Q2 2024 results: Unpacking the blame put on China
Brands performance in the quarter
shows that blaming China for sales declines oversimplifies deeper issues in brand management and consumer engagement.
Published July 29, 2024 in
Hard Luxury
The Q2 2024 financial results for luxury companies reveal a complex landscape. While brands like Hermès report all-time high results, others like Gucci accelerate their decline.
As diverse as these results are, so is the performance in China. Blaming disappointing results on the Chinese market and the reluctance of Chinese luxury clients to meet forecasts is an oversimplification. Let's delve into the specifics and analyze why blaming China is misleading.
Hermès reported strong performance, with organic revenue up by 15.1% in the first half of 2024 and 13.3% in the second quarter. “The Leather Goods and Saddlery métier (+19%) posted a remarkable performance, thanks to the increase in production capacities and particularly sustained demand,” according to Hermès’ press release, indicating high demand for core products like the Birkin and Kelly bags.
Hermès has become the benchmark in luxury brand execution, focusing on brand equity, storytelling, and exceptional client experience, never offering discounts. In Asia, the brand posted growth in all countries, with the half-year report noting, “as a reminder, performance in the second quarter of 2023 was exceptional, following the lifting of health measures in China.”
Hermès offers a balanced commentary on the current situation, unlike some companies blaming economic headwinds for not meeting sales targets. For instance, Kering reported an 11% organic decline in revenue for Q2 2024 and the first half of the year, attributing this to a “challenging market environment.”
Gucci, Kering’s biggest brand, was down 19% organically, with a 20% decline in its directly operated stores, further accelerating its decline over the last quarters.
Brand storytelling as a critical challenge
Hermès and Gucci's brand management could not be more contrasting.
Hermès excels in long-term brand storytelling, while Gucci departed significantly from its former creative direction and client-centric storytelling to a subdued product-focused approach.
This shift has logically turned clients away.
Many underperforming brands suffer from inconsistencies in brand storytelling, while growing brands master this art.
The world is moving from a product-centric to a client-centric reality, where the ability to create cultural capital is crucial. Brands unable to create desirability face immediate client reactions.
China: A convenient scapegoat?
Economic conditions in China pose challenges, but attributing luxury brands’ performance issues predominantly to this market overlooks critical factors.
Chinese luxury consumers are traveling and spending more abroad, particularly in markets like Japan, Dubai, and France, where they benefit from significant price differentials.
This trend, well-documented on Chinese social media, has influenced purchasing behaviors. Analysts indicate that Chinese luxury clients spend more overall, just not in China.
On Little Red Book and other platforms, buyers discuss how some brands, including Hermès, Balenciaga, and Louis Vuitton, are 30-40% cheaper in Japan or France, prompting many to purchase luxury goods outside China. This benefits brands with high brand equity, exacerbating demand issues for brands with weaker storytelling. To counter this, some brands like Balenciaga have offered significant price promotions in China, further eroding trust in their value proposition.
Chinese luxury buyers today expect more than just products; they seek unique experiences and deep engagement with brands. In recent VIP client ambassador trainings in China, it was evident that VIC service in China is more advanced than in the US or Europe, yet Chinese clients still expect more.
Western brands often lack localized strategies, luxury experience trainings, and digital integration necessary to resonate with these clients.
The advanced digital landscape in China complicates matters for brands that fail to leverage digital platforms effectively or offer seamless online and offline experiences. Continuous innovation in digital engagement, experience creation, and luxury training is crucial for maintaining relevance in this dynamic market.
The way forward
Blaming China for luxury brands’ performance challenges is an oversimplification. Understanding intricate consumer behaviors and adapting strategies accordingly is key. Brands must address price transparency better than by destroying brand equity with price promotions.
Enhancing digital engagement and aligning with sophisticated Chinese consumer expectations domestically and globally is essential. Only through a faster, more nuanced, and adaptive approach can luxury brands navigate this critical market's complexities and secure sustainable growth.
Hermès consistently shows that rigorous long-term strategic brand equity building, storytelling, and client experience creation are critical to creating cultural capital and desirability, which also pay off financially.
My recommendation to luxury brands: don’t blame economic headwinds. Audit your brand and your ability to connect with clients in China and beyond.
The real issues for underperformance are almost always internal, not external. Shifting blame to the market wastes precious time needed for course correction.
In China’s fast-paced ecosystem, wasting time is losing momentum.
This is an opinion piece by Daniel Langer, CEO of Équité, recognized as one of the “Global Top Five Luxury Key Opinion Leaders to Watch.” He serves as an executive professor of luxury strategy and pricing at Pepperdine University in Malibu and as a professor of luxury at NYU, New York. Daniel has authored best-selling books on luxury management in English and Chinese, and is a respected global keynote speaker.
