Distribution, a factor of success
If there is a key sector within that of luxury goods it is the car industry. Brands like Maserati state outright that what they are selling is more than just a car. Enrique Lorenzana, the firm's Area Manager Iberia, points out that "you buy a Maserati to keep it in the garage." In the end, "we are not selling a means of transport, but rather a feeling. Those who insist that we are selling mobility are killing the feeling for cars."
As with anything, in 102 years of history there have been highs and lows; Maserati's presence in Spain has experienced a turning point in the past two years. For Lorenzana, the key to the rise of the firm in this country has been due to "the qualitative leap forward in distribution." From four showrooms in 2013, there are now 15 distributed around the peninsula and in Andorra. "We offer good prices for a product like this, but many people do not know what it is to have a Maserati," Lorenzana says. Therefore, she insists that "we need the help of distributors to bring this information to the markets."
This top of the range sports car firm has in recent years lowered the minimum threshold to acquire one of its vehicles, from 130,000 to 60,000 dollars, "without losing the qualities associated with Maserati," points out the manager. And, she adds, "if you want to sell 100,000-dollar cars, you have to focus on quality."
It is quality that allowed them to become the most profitable network of car showrooms in Spain in 2015, with average margins of 4%. "We are strict about choosing the showroom in each city, which has to already have premium brands. Choosing a distributor is where the brand's success begins," says Enrique Lorenzana. In conclusion, she says that "in the luxury car sector you have to put your heart into everything you do, and that means being close to the client."
Making a name at the high end
Miguel A. Torres, president of Bodegues Torres, also sees the need for a good distribution network. In his case, he cites the story of his company in China, where the group's second largest company is located. "We sell a lot of our high-end wines there, those that are more than 200 euros a bottle," Torres points out. "Some Chinese clients mix this wine with soft drinks, but the important thing is that they get used to the flavour," he says ironically.
The veteran businessman stresses that since the '90s small percentages have been invested in different distribution companies around the world. "We are silent partners, we do not tell the board what it has to do. But that way they see that we want to remain there as Torres," he says.
Yet he laments the fact that "most Spanish wine that is exported is sold in bulk to France or Italy." It is something, he says, that presents problems when it comes to selling high-end wines. "We want to sell quality wines, and sometimes the image of Spanish wine does not help. That is why we are on the world market under the Torres brand, not as Spanish wine," he makes it clear.
Projects such as the Vinoteca on Passeig de Gràcia helps Bodegues Torres to "reach the end user. Some 60% of the wines consumed there are high-end." It is a segment of the market they insist on competing in. "There are many competitors at the lower end, but at the more select level we can compete because we have the quality and fewer rivals."
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| Lorenzana and Torres, accompanied by professor Pedro Nueno, during the meeting at Iese. |
The value of raising brands
Faced with economic uncertainty, the main investment firms that specialise in this market are concentrating their efforts on smaller brands. They are companies that can raise and maximise their returns, without ruling out the options of mergers.
Luca Solca, Managing Director Global for Luxury Goods of BNP Paribas, says that "the industry is facing a turning point in respect to its recipe for growth." Until now, he says, the recipe has been as simple as "opening shops in China to take advantage of the huge wave of consumers created there." In fact, in the past two years, two thirds of growth has come from Chinese consumers. "If they cut back on their expenses, the industry will have to develop a new way of doing things. There is a need to seek opportunities for growth, to be more digital and cost-efficient, such as making the brand more aspirational," says Solca. And he warns that "growth will be more difficult because there will not be another wave like that in China."
In all, he confirms that "we have to learn to live with volatility. Shares have gone down a lot, but remain in an intermediary zone." For the expert analyst from BNP Paribas, "the wisest will wait when it comes to making acquisitions in order to find a good opportunity. It is not easy to add value to large companies, and so there will be more focus on small ones."
The polarisation of luxury
For Julio Babecki, Managing Director of L Catterton Capital, "there is an increasingly large polarisation among consumers." He sees a difference between those who "want to pay a premium to be different, for whom luxury has to grow in quality, price and exclusivity," and new consumers of luxury such as "the Chinese, Russians or people from the Middle East, who will almost certainly be less sophisticated until they gain experience in this sector." For Babecki, these are "consumers looking for that balance between quality and price, or accessible luxury."
The Asiatic role
The United States is, by a mile, the main market for luxury goods. However, close behind are countries like Japan (8% of the global market), China or South Korea. The importance of the economic situation in Asia seems like it will be key for the growth of the most exclusive brands.
Núria Mas, economics professor at Iese, points out that "China represents more than 3% of world GDP, and what happens there could affect the economies of many other countries." And what is happening is great volatility, which has been felt by the luxury sector. The big question, she says, is knowing if Chinese growth will fall slowly or rapidly. "I think it will be a slow fall. It has grown 10% in the past 30 years, it is normal that it cannot keep up that rhythm," she says.
The Chinese attempts to change its economic model mean the beginning of the end of two of its traditional pillars: investment and exports. Yet, China has in its favour a huge emerging middle class among whom the government is encouraging consumerism. However, Mas warns that "the population is ageing very quickly and that makes families want to save for the future." If consumption also suffers problems, Mas makes it clear that China still has an ace up its sleeve: public debt. "It still has a long way to go compared with the rest of the large economies in this area," she says.
Raul Verdicchi, CFO for Japan and South Korea at Ermenegildo Zegna, points out that in 2014 and 2015, "Chinese consumers cut down on trips to Hong Kong and went more to Japan, which is one of the most sophisticated markets in the world." As far as Japan is concerned, he points to "very good distribution, both with large shops and small single-brand shops, and with duty free in city centres." According to Verdicchi, many brands, such as for example Burberry, have tried to take advantage of this confidence and "have gone back to a market that they had left to make large investments."
The Ermenegildo Zegna manager points out that the luxury client in Japan is a native in 80% of cases (before it was 90%, a figure that has gone down due to the influx of Chinese tourists). "There is a very sophisticated sense of fashion among people between 35 and 45. They have a very advanced sense of identity. They used to want to seem like everyone else, but they increasingly want to stick out from the group," he says. That means that "brands will also have to find a way to stick out for consumers."