With sales from wholesale divisions expected to continue to decline over the next five years, brands in the luxury sector are turning their attention to retail.
Over the past few years, we’ve seen many luxury brands report stronger sales from their retail, rather than wholesale, divisions and, as a result, have focused their efforts on growing the former. The luxury brands surveyed said 55% of sales come from their wholesale channel but, over the next five years, they expect wholesale to make up less than half of total turnover – 39.5%. Respondents explained the reason for this predicted change, with one saying “the wholesale model does not have enough margin”. Another added: “The wholesale segment is falling down. Only a few established wholesalers will survive, those who are able to review their business and approach to consumers, including investments in e-business, to become more internationally known.” One respondent simply said this is now the “rule of thumb”.
As investment firm Exane BNP paribas’ Luca Solca says: “If wholesale isn’t dead, then it’s severely damaged.” Solca explains that industry-wide, deep discounting over the past few years has led brands with a traditional wholesale model to become more protective and take more control of all elements of their business, from pricing, to marketing and distribution. “The strongest brands are taking steps to manage their own distribution. But brands have to be prepared to invest more capital back into their business to finance directly-operated stores, for example.”
He also expects fewer independent boutiques to enter the market. “The more sophisticated boutiques will become masters of selection, in a smaller scale to department stores.”
This shift is also affecting the skillset among luxury professionals, says Mathew Dixon, director at luxury recruitment consultancy Hudson Walker International. “Nobody used to talk heavily about sales [in the luxury sector] but brands are developing much more aggressive business models with underlying sales ethics. It’s a very sales-driven environment now with more commercially-oriented roles.”
As for buying strategies among retailers, forward order remains the norm, representing 62% of total budget. But in the next year, this is expected to contribute to more than half of buyers’ budgets – 53%. Respondents listed the following as their best-selling brands (in no particular order): Vivienne Westwood, J Brand, Equipment, Isabel Marant, Alexander McQueen, Stella McCartney, Diane von Furstenberg, Louis Vuitton, Rick Owens and By Malene Birger.
Looking at specific markets, sales were generally up on a year ago for the majority of respondents – 89% – across womenswear, menswear, kidswear, accessories, footwear and lingerie. Only 10% of respondents said sales were down in womenswear, kidswear, footwear and lingerie, with menswear and accessories showing a clean sheet. 25% of respondents said menswear sales were up between 10% and 20%. Meanwhile, 50% said footwear sales had increased between 0% and 10%, and 46% said womenswear sales had risen by between 10% and 20%, while 27% said accessories had seen the same increase.
Manufacturing case study - Honey Clothing
Mahbub Ullah, accounts manager
Customers Christopher Kane, Paul Smith, Preen, Roland Mouret
As a Sedex-certified [an ethical and responsible supply chain standards body] premium outerwear manufacturer, trading is relatively sound and improving every year. More and more British designers and high-end brands are making some of their lines here in the UK and we are benefiting.
I think the luxury sector has traded better than the rest of the fashion market [in the economic downturn].
The British Fashion Council has better organised London Fashion Week in recent years, which has motivated high street brands and designers.
Consumers are more aware of where their clothes are being made and they are willing to pay extra if made well in an ethical working environment in this country.
We’re experiencing demand for high-quality pure wool, and specialised leather is growing each year.
London-based manufacturers are competing with established manufacturers from France and Italy. Established British designers are also choosing to bring back their production from continental Europe to this country. As long as we can keep up the quality, the demand will grow further.
Manufacturing case study - Johnstons of Elgin
James Dracup, group managing director
Customers Burberry, Chanel, Hermès
Trading is tough. A mild winter in 2011 left our customers with too much inventory in our product categories resulting in small orders for 2012. The Olympics, weather and a less competitive currency in relation to the eurozone all impacted on tourist travel in August 2012, which affected our customers.
A slowdown in developing markets is also affecting our global luxury clients.
The luxury sector has traded better than the wider market, however, it has slowed in terms of growth potential compared with two years ago. Opportunity still exists in markets such as Brazil, India, Russia and China, which, although slowing down, will continue to grow.
Both private-label supply to global brands and the development of our own-brand offer with independent wholesale customers and via our own retail has driven growth.
Menswear is particularly strong as is the local Scottish tourist market.
Next year I expect continued growth with private-label couture and luxury brands, and a more effective sales effort from our own company in the Scottish tourist market, the wider market and particularly the US.
We intend to grow our export sales from the current 25% turnover to more than 30%.
Manufacturing case study - Harris Tweed
Malcolm Campbell, sales and marketing director for the Carloway Mill
Customers Brooks Brothers, Chanel, Saks
Trading is currently very good. We are sampling well for autumn 13, and our top-end customers appreciate the marketing and images we have created to promote the history and provenance of Harris Tweed.
We believe the luxury sector has traded well because clients seek quality and products that last. Price deflation over the past 20 years has created a disposable product, which is no longer acceptable. Our customers want a product that is robust and fit for purpose, and they are prepared to pay for it.
We have also developed two new finishes working with WT Johnson textile finishers of Huddersfield. The new finishes and creative colours and designs will drive sales.
Demand in the UK luxury sector is less strong than in other countries such as Japan, the US and Europe, probably because the UK high street brands over the years have driven the price of Harris Tweed down, so it does not reflect the artisan processes of carding, spinning, hand-loom weaving and finishing that the luxury market tends to respect, appreciate and pay for.
Manufacturing case study - Alfred Brown
Ian Brown. joint managing director
Trade is very good.
We think people are buying less but spending more on individual items, which is helpful to us, because being a European weaver we will always be at the luxury end.
In difficult economic climates, the luxury and bottom ends of the market hold up better than the middle market. Fabric woven in Britain is still strong and this plays into the luxury market.
The biggest driver is the fact that all our fabrics are woven in Britain and some of this sentiment is beginning to show in the womenswear market, which is growing for us.
Our biggest market though is menswear – semi-plain fabrics are strong, especially slightly bolder colours.
Next year, I expect traditional English fabrics, with a modern twist, to drive sales.
I think the Jubilee and Olympics have given us a belief in ourselves as a nation and this encouraged the demand for British manufacturing and goods. We have had a good year and we will be pleased if we can maintain this growth in the year to come.
‘Wholesale is tougher than ever’
Guy Salter, Deputy chairman, Walpole
Wholesale will always be with us but it is tougher than ever. It’s not just the squeeze on margins but the lack of control. There is a trend towards getting out of accounts that are either too accessible or don’t present the right environment for luxury, even if that means taking a short-term hit on revenues.
The strength of menswear and accessories isn’t a surprise and in my view is based on underlying strong fundamentals.