RETAIL EVOLUTION 2018 - Fondazione Altagamma · Digital Luxury distribution is at an Inflection...
Transcript of RETAIL EVOLUTION 2018 - Fondazione Altagamma · Digital Luxury distribution is at an Inflection...
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RETAIL EVOLUTION 2018
Luca Solca (+41) 22 7186536 [email protected]
Melania Grippo (+39) 02 89 63 1724 [email protected]
Guido Lucarelli (+39) 02 89 63 1726 [email protected]
20 FEBRUARY 2018
February 20th 2018, Milan
Luca Solca, Managing Director, Global Luxury Goods
Exane BNP Paribas
Digital Luxury distribution is at an Inflection Point:
The Last of the Mohicans are on the Bandwagon
Exane BNP Paribas | RETAIL EVOLUTION 2018 2
“[..] We want to invest heavily in the digital program.”
(Patrizio Bertelli, Prada CEO -12/04/2017)
“What we want to do with this big cash flow is mostly self-
fund our growth activities and development activities in an
industry we are not fully familiar with yet, i.e., digital, but
it certainly requires a big investment in human resources and
consulting and development.” (Patrizio Bertelli, Prada CEO -
12/04/2017)
“We all now understand that consumers tend to buy
through both channels at the same time, so through both
retail physical stores and through e-commerce channels.”
(Patrizio Bertelli, Prada CEO – 08/09/2017)
“Our digital strategy, which is based on 3 pillars: first,
driving online sales through our e-commerce platform as
Mr. Bertelli was telling you before; second, developing a
seamless omnichannel shopping experience; and third,
increasing our investments in digital communications.”
(Chiara Tosato, General Manager and Digital Director, Prada
08/09/2017)
Digital Luxury distribution is at an Inflection Point:
Luxury brands are embracing digital in China
Exane BNP Paribas | RETAIL EVOLUTION 2018 3
Source: Luxury daily, ecommercechina.agency.com, digiday
Digital Luxury distribution is at an Inflection Point:
We record a sharp ecommerce acceleration in the USA
Exane BNP Paribas | RETAIL EVOLUTION 2018 4
Digital luxury accounted for 9% of the market in 2017 – It is projected to exceed 25% in 2025E
Styles available for purchase online (including Pre-Order, US, FW17/18 vs. FW16/17)
Source: Contactlab analysis, Exane BNP Paribas
FW16/17 FW17/18 y/y chg (%) Group Deltaas % of
total
as % of
total
Dolce & Gabbana 737 2,235 203% 1,498 25%
Prada 876 1,846 111% 970 16%
Fendi 764 1,182 55% 418 7%
Brunello Cucinelli 292 818 180% 526 9%
Tod's 259 424 64% 165 3%
Hermes 2,863 3,876 35% 1,013 17%
Gucci 2,502 3,477 39% 975 16%
Burberry 1,778 2,182 23% 404 7%
Saint Laurent 1,270 1,622 28% 352 6%
Bottega Veneta 817 971 19% 154 3%
Moncler 682 700 3% 18 0%
Valentino 528 568 8% 40 1%
Zegna 478 531 11% 53 1%
Balenciaga 390 419 7% 29 0%
Louis Vuitton 1,814 1,333 -27% -481 -8%
Ferragamo 1,160 1,040 -10% -120 -2%
TOTAL 17,210 23,224 35% 6,014 100% 100%
Catching
up59%
-10%Bucking
the trend
Extending
the lead
Surfing
48%
2%
The rise of digital distribution has a number of strategic implications
Exane BNP Paribas | RETAIL EVOLUTION 2018 5
1. Digital distribution grows faster than the
market Physical Retail and Wholesale distribution has to
shrink
2. If you know exactly what you want, you will
buy it online
The store as a “point of physical distribution” is
yesterday’s story
3. If you don’t know what you want, you may
go to a store The future store will be a “point of discovery”
4. The risk of “discovery” and “purchase”
decoupling rises
Long term winners need to build a “closed
distribution circuit”
5. The internet works as a major “magnifying
lens” of brand management shortcomings
Luxury brands need to clean up their physical
distribution, if they want to retain perceived
exclusivity and safeguard brand equity long-term
6. Brands and categories with high wholesale
exposure will be under increasing pressure
Wholesale dependent brands / categories need to
invent a new distribution paradigm
Physical Retail and Wholesale distribution has to shrink
Exane BNP Paribas | RETAIL EVOLUTION 2018 6
Abercrombie
Kingfisher
GAP
Foot Locker
Inditex
Primark
Next
R² = 73%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
200 300 400 500 600
RO
CE
(In
cl. G
ross G
oo
dw
ill a
nd
le
ase
ad
juste
d)
Sales / Sq Foot (EUR)
ROCE (Incl. Gross Goodwill and Lease adj.) vs Sales / Sq Foot
Source: Exane BNP Paribas estimates, Company reports
Note: On the latest Annual Report published – Year end differ
ROCE improvement (Incl. Gross Goodwill) vs TSR
Source: Exane BNP Paribas estimates, Company reports, Factset
Note: Prada from 2011
HER
KER
LVMHLUX
BRBY
UHR TODS
CFR
BOSS
PRA
R² = 85%
(100%)
0%
100%
200%
300%
400%
500%
600%
700%
800%
900%
(15%) (10%) (5%) 0% 5% 10% 15% 20%
TS
R (
20
05
-20
17
)
ROCE (inc. Gross Goodwill) improvement (2005-2017)
In fact, physical retail has already started to shrink
Exane BNP Paribas | RETAIL EVOLUTION 2018 7
Source: Exane BNP Paribas Proprietary POS Database, RE-Analytics
Note: Excluding Outlets; Not adjusted for multiple locations in shop in shop / department stores
2013 2015 20172013-2015
CAGR
2015-2017
CAGR
2015-2017 %
GROWTH
Tory Burch 59 123 149 44% 10% 11%
Michael Kors 248 482 566 39% 8% 34%
Coach 744 712 786 -2% 5% 30%
Lancel 145 91 74 -21% -10% -7%
TOTAL ASPIRATIONAL 1,196 1,408 1,575 9% 6% 68%
Céline 104 161 257 24% 26% 39%
Saint Laurent 100 156 188 25% 10% 13%
Bottega Veneta 220 285 316 14% 5% 13%
Dior 216 200 197 -4% -1% -1%
Hermès 305 315 308 2% -1% -3%
Chanel 331 361 338 4% -3% -9%
TOTAL HIGH-END 1,276 1,478 1,604 8% 4% 51%
Prada 264 375 382 19% 1% 3%
Gucci 420 503 505 9% 0% 1%
Louis Vuitton 475 473 473 0% 0% 0%
Burberry 444 466 461 2% -1% -2%
TOTAL MEGA-BRAND 1,603 1,817 1,821 6% 0% 2%
Balenciaga 91 97 125 3% 14% 11%
Chloé 135 141 168 2% 9% 11%
Fendi 210 221 227 3% 1% 2%
Dunhill 162 122 126 -13% 2% 2%
Miu Miu 125 183 176 21% -2% -3%
Shanghai Tang 41 43 30 2% -16% -5%
Marc Jacobs 215 246 149 7% -22% -40%
TOTAL CHALLENGERS 979 1,053 1,001 4% -3% -21%
TOTAL SOFT-LUXURY 5,054 5,756 6,001 7% 2% 100%
Retail network evolution (# of POS)
The store as a point of physical distribution is yesterday’s story
Exane BNP Paribas | RETAIL EVOLUTION 2018 8
4%
5%
6%
7%
8%
9%
10%
11%
12%
199
9
200
0
200
1
200
2
200
3
200
4
200
5
2006
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
2015
201
6
201
7
Vacancy Rates in US Shopping Malls
Source: Reis, Datastream
0%
5%
10%
15%
20%
25%
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
China US
Online Sales as a % of Total Retail Sales
Source: Euromonitor
The future store will be a point of discovery (1)
Monobrand – Retail as DNA
Exane BNP Paribas | RETAIL EVOLUTION 2018 9
Starbucks Roastery in Shanghai
The future store will be a point of discovery (2)
Multi-brand – The Department Store / Shopping Mall as Curator
Exane BNP Paribas | RETAIL EVOLUTION 2018 10
Harrods
A “closed distribution loop” becomes vital
Showrooming is OK, if you then capture purchases online
Exane BNP Paribas | RETAIL EVOLUTION 2018 11
Wise luxury brands will work to build mono-brand
website traffic and sales
Exane BNP Paribas | RETAIL EVOLUTION 2018 12
Source: Exane BNP Paribas
1) Luxury brands need to have e-commerce capabilities - there is no Plan B
Hence the investments are already in the BS and the P&L
2) SG&A cost of digital retail are lower than those of physical retail
Hence, if brands can operate direct physical retail
they will be all the more capable of operating direct digital retail
1) As a temporary solution - when they have too much fish to fry
2) If they want to achieve rapid online growth [and are late in their direct digital capabilities]
3) In markets where traffic is highly concentrated - e.g. China with Tencent and Alibaba
100 80-85 40-50
Operating cost is really a non-issue in this calculation
Then, why would luxury brands use concessions or wholesale online ?
Revenue for the Brand
Direct Retail
Mono-brand Website
Digital Concession
e.g. Farfetch
Digital Wholesale
e.g. NAP
The jury is out on multi-brand full price digital luxury retail –
e.g. YNAP
Exane BNP Paribas | RETAIL EVOLUTION 2018 13
Structural
Competitive
Advantage
First Mover
Competitive
Advantage
FUTURE SCENARIO 1
Net-à-Porter will continue to grow faster than the
market and its competitors. NAP's market share of
full-price digital luxury retail will therefore continue to
go up. In five years Net-à-Porter will be THE
dominant player - a sort of Amazon of luxury goods
online. All brands will have to go to it, and will
depend on it.
FUTURE SCENARIO 2
Full-price digital luxury retail will be more and more
crowded. Luxury brands will build up their mono-
brand direct retail operations. Traditional department
stores will scramble to grow in ecommerce. Chinese
players will rise. New entrants will continue to pour in
- Farfetch, Matches, Moda Operandi, Orchard Mile,
etc. NAP's market share will decline.
Luxury brands need to clean up their physical distribution
– Wholesale (1/2)
Exane BNP Paribas | RETAIL EVOLUTION 2018 14
Luxury brands need to clean up their physical distribution
– Wholesale (2/2)
Exane BNP Paribas | RETAIL EVOLUTION 2018 15
Company Website Chrono 24 Website
-27%
Luxury brands need to clean up their physical distribution
– Grey Market
Exane BNP Paribas | RETAIL EVOLUTION 2018 16
Source: Company website
ISA store on Nathan Road – Hong Kong ISA Website
Eyewear & Watches - In need of a new distribution paradigm
Exane BNP Paribas | RETAIL EVOLUTION 2018 17
Consolidated
Fragmented
Capital
Intensity
HighLow
Retail
Structure
Virtual Integration
e.g. Luxottica / STARS
Sell-Out Control
e.g. Rolex / Product Card
Digital Bypass
Digitally Native New Entrants
e.g. Allbirds - Sneakers
Downstream
Retail Integration
=> M&A
e.g. Luxottica / Lens Crafters
Downstream
Retail Integration
=> Organic
e.g. Swatch / Hour Passion
e.g. Daniel Wellington - Watches
Strategic options to increase retail control in a multi-brand category environment
Source: Exane BNP Paribas
RTW - Lack of viable retail model weakens long-term "designer
fashion" brand equity prospects
Exane BNP Paribas | RETAIL EVOLUTION 2018 18
Source: Exane BNP Paribas
+ Large flagships in prime locations
+ High dependence on seasonality
+ High dependence on sizes
= poor space productivity and poor full price sell-through
High engagement with off-price destroys perceived value
High dependence on licenses increases ubiquity perception
High dependence on Wholesale brings low price discipline
Engagement with grey market further weakens point of purchase control
Traditional department stores are going down
Traditional mom & pop retailers are going down
Retail driven mass fashion brands - Zara, H&M, etc.
Retail driven mid-price brands - Sandro, Maje, The Kooples, Liu Jo, etc.
Digitally native fashion retailers and brands - Boohoo, Everlane, etc.
Absence of sustainable retail model prevents tight distribution control
Shrinking
Customer Base
Shrinking customer base reduces discretionary brand resources
LONG-TERM BRAND EQUITY?
Value
Competitors
Highest cost per use of all luxury categories invites value competition
Poor
Distribution Control
Poor distribution control weakens percevived brand exclusivity
Loss-making
Retail Model
In conclusion
19
We are on the verge
of further significant
acceleration of digital
luxury distribution
This has a number
of strategic
implications for
luxury goods players
– as it forces them to
Players and brands
with high structural
wholesale exposure
see their challenges
multiply
All major luxury brands are on the bandwagon
Legitimate digital luxury in China is taking off
Digital luxury in the USA is accelerating
Trim their physical retail and above all wholesale exposure
Make their stores more relevant and different
Build a physical and digital distribution “closed circuit”
Reconsider their wholesale, grey market, and off-price activity
Ensure tighter price discipline and brand deployment
Higher risk of brand trivialisation
Higher exposure to digitally native new entrants
More pressing need to develop a viable distribution stratagem
Exane BNP Paribas | RETAIL EVOLUTION 2018
Exane BNP Paribas | RETAIL EVOLUTION 2018 20
Extensive Research and Coverage of Luxury Goods (1/2)
LUXURY GOODS:
The Counter-
standardisation of
Luxury Retail
LUXURY GOODS: Digital and
Physical Integration: Luxury
Retail's Holy Grail
LUXURY GOODS: Online
Offer Dive & Pricing
Landscape FW17/18 Sharp
Ecommerce Acceleration
LUXURY GOODS:
Year of the Dog in
China? Only in Name
LUXURY GOODS: The
Strategic Perspective on
Luxury Goods
Exane BNP Paribas | RETAIL EVOLUTION 2018 21
Extensive Research and Coverage of Luxury Goods (2/2)
LUXURY GOODS: Disrupting the Luxury Goods
Business Model
LUXURY GOODS: All you ever
wanted to know about...(1) Luxury
goods demand dynamics
LUXURY GOODS: All you ever wanted to know about... (2) Luxury goods competitive dynamics
LUXURY GOODS: All you ever wanted to
know about... (3) The future of luxury
goods
DISCLOSURES
Exane BNP Paribas 22
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We, Melania Grippo, Guido Lucarelli, Luca Solca, (authors of or contributors to the report) hereby certify that all of the views expressed in this report accurately reflect our personal view(s) about the
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