In the first quarter, Zegna topped the list of store closures, and men’s clothing became the hardest hit area
The trend of luxury brand store closures since last year is still intensifying. Statistics from overseas banks and data analysis institutions show that many mainstream luxury brand companies closed stores to varying degrees around the world in the first quarter, among which men’s luxury brands Brand Zegna topped the list of store closures. The past days of making money by opening a store are gone forever.
The trend of store closures intensifies, with 40 stores closing in eight major brands
In just three months, the eight major luxury brands have closed a total of nearly 40 stores worldwide.
Data from BNP Paribas and RE Analytics show that luxury store closures intensified globally in the first quarter, with Italian men’s luxury brand Zegna ranking first in the number of store closures, with 15 stores closed; Italy Gucci, a leather goods and fashion luxury brand, ranked second, with 6 stores closed; Italian luxury brand Bottega Veneta closed 5 stores; the same Italian luxury brand, Prada Group Vice President Online brand Miu Miu has closed 4 stores; Louis Vuitton and Italian luxury leather goods brand Tod’s have closed 2 stores each.
The trend of luxury brands closing stores began to spread as early as the end of last year. Louis Vuitton closed several stores in the North China market and closed the LV Building in Shanghai. Christian Dior also withdrew from the Guangzhou market. According to statistics from the RET China Commercial Real Estate Research Center, last year, 11 major luxury brands including Louis Vuitton and Gucci closed a total of 34 stores and opened only 14 new stores. Among them, Louis Vuitton is the most aggressive in closing stores. It is reported that Louis Vuitton will close about 20% of its stores in second- and third-tier cities in the first half of this year.
Men’s clothing is hardest hit, demand shrinks
Amid the trend of luxury brands closing stores, menswear-based brands have become the hardest hit. As shown in the above data, Zegna closed 15 stores globally in the first quarter. Not long ago, Gucci also closed its only men’s clothing store in Europe in Milan, Italy.
Two or three years ago, a number of luxury brands used men’s clothing as a new growth engine to replace the women’s clothing business. Louis Vuitton, Kering Group, Hermès, etc. have increased investment in the men’s clothing business, developed production lines, and opened additional stores. . While the brand is targeting high-end male consumer groups, it is also targeting the Chinese market. Data shows that Zegna’s largest single market is in China, with the market size accounting for almost 1/3 of the brand. The brand’s global CEO also publicly stated at the beginning of the year that the Chinese market is extremely important to Zegna.
China’s men’s luxury goods market has declined sharply. Not long ago, Zegna announced its 2015 fiscal year performance data, which showed that revenue was 1.26 billion euros, a year-on-year increase of 4%; core profit was 146 million euros, a year-on-year decrease of 21%; net profit was a 45% decline. The financial report explained that the market in Greater China, which used to have high gross profit margins, has shrunk. In addition, Hugo Boss, which specializes in men’s clothing, has also suffered from the drag of the Chinese market. When it recently announced its first-quarter results, it showed sales of 642.6 million euros, a year-on-year decrease of 3.7%; net profit dropped sharply by 37.1 million euros, a drop of 49%, the largest decline in the past six years. It also proposed to close 20% of stores in the Chinese market and reduce prices by 30%, hoping to tide over the difficulties.
Yang Dayun, president of Uta International Fashion Brand Investment Company, said that Chinese people have never had the habit of wearing suits. In the past, business owners often customized one or two sets of high-end suits and hung them in the closet, and only wore them when necessary. With the changes in some concepts in China’s workplace and official circles, it is very difficult to operate foreign luxury men’s clothing, and it is likely to be even more difficult in the future. The demand for high-end men’s clothing is shrinking.
Farewell to real estate dividends and high costs
Analysis points out that luxury brands in increasingly mature emerging markets such as China will bid farewell to the previous era of making money by opening a store.
Yang Dayun said that the reason why luxury brands have been able to make money by opening stores in China in the past 8-10 years is not relying on their own operating capabilities, but rather enjoying the dividends from the appreciation and operation of commercial real estate projects. New shopping mall projects often rely on the entry of well-known luxury brands, driving other brands to follow suit and driving up project rents. In order to attract brands, property owners of real estate projects often provide good conditions for brands to settle in and receive decoration fees, and some properties will give brands zero rent for three years. It is understood that the decoration cost of luxury stores is about tens of thousands of yuan per square meter. In this situation, every time a luxury brand opens a new store, it will earn profits as long as it sells. Nowadays, the market situation has reversed, and many properties have withdrawn favorable conditions for opening stores. This means that brands need to go through an average business growth period of about three years before they can achieve profitability in new stores. Therefore, they need to select locations carefully and consider the input-output ratio. If sales of some stores that have resumed renting are not good, they will begin to consider closure and consolidation.
Zhou Ting, director of the Fortune Quality Research Institute, once said that in 2015, 83% of luxury brands closed stores in China in various forms. In 2016, more than 95% of brands will choose to strategically close some stores and close stores. The tide will intensify.
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