That all eyes are on Asia, and nowhere more than China whose post-crisis rebound puts it several steps ahead of Europe, owes much to consumer behaviour and especially the luxury shopping frenzy that has China’s shoppers in its grip. After months of Covid-19 restrictions and travel bans, the country’s consumers have been boosting the national economy with “revenge spending” while brands continue to invent new ways to deliver exciting customer experiences. Figures clearly confirm this trend, starting with record 18.3% growth in China’s GDP in the first quarter of 2021. Economists have nonetheless expressed reserves as to the reliability of data, which benefits from a positive base effect after the country’s economy contracted by 6.8% during the same period 2020. The upturn is, however, sufficiently robust for the government to forecast 6% growth for the year as a whole, which analysts consider to be a low estimate.
These excellent dispositions are reflected in results for the first three months of 2021 as recently announced by the main luxury groups. At €14 billion, sales at LVMH grew 32% year-on-year and, interestingly, 8% on the first quarter 2019, showing that numbers have not been skewed by 2020’s pandemic-hit figures. The group’s first-quarter sales in Asia (excluding Japan) surged by 86% compared with 2020 and 26% compared with 2019. Business in the United States also fared well, increasing by 23% (+15% on 2019). Europe, meanwhile, continues to trail behind as sales fell -9% (-18% on 2019). Similarly strong performances were reported by other luxury majors. First-quarter sales at Hermès rose by 44% to €2.1 billion (+33% on 2019) and at Kering by 21.4% to €3.9 billion (+5.5% on 2019).
Stock markets have responded positively to these latest figures, with analysts expecting 2021 to be an excellent year for the luxury sector. After a succession of record high stock prices, LVMH’s market capitalisation is now in excess of €300 billion. The world’s biggest luxury group broke through the €100 billion mark in March 2017 then €200 billion in November 2019. Just 17 months later, and despite last year’s dry spell, Bernard Arnault’s conglomerate has hit €300 million. Over six months, LVMH stocks have gained 51%. Edging ahead is Richemont, whose stocks rose by 61%, with increases for Swatch (+46%), Hermès (+27%) and Kering (+19%) also.
Good news all round
These performances are of course influenced by the expectation of an upturn in the global economy. The IMF projects that the post-crisis global economy will grow 6% in 2021. Again according to the IMF, the United States, which recently adopted a $1.9 trillion rescue plan, is expected to see its economy grow by 6.4% in 2021 and 3.5% in 2022. All of which spells good news for the luxury sector. And there are more glad tidings: the data analytics company GlobalData forecasts that e-commerce in China will register a 17.2% increase this year to reach $2.1 trillion, on the back of 14.8% growth last year. Needless to say, luxury brands are in the starting-blocks to benefit. Local observers are already predicting a “monumental” year for Farfetch. Strategic partnerships with Alibaba, backed by Richemont, and Tencent, the two companies that dominate the digital ecosystem in China, speak volumes about Farfetch’s ambitions. A determination shared by the luxury industry’s major players.