THE FREE SHIPPING REPORT: How this pervasive perk is eating away at margins, and the strategies retailers can adopt to compete with Amazon
After a tough 2016, earnings growth among luxury retailers is expected to nearly double from 4% to 7% this year, marking a welcome boost in a sluggish market, according to Moody’s Investor Service.
However, the sector isn’t likely to see a return to the double-digit growth it experienced between 2010 and 2013 until 2020 or later.
Growth in this segment could relieve pressure from fierce competition in the space, which has led to huge pullbacks on brick-and-mortar stores and consolidation.
- Luxury retailers like Ralph Lauren and Coach have been reducing their reliance on department stores as wholesale channels grow ineffective. In addition, many are shuttering their own stores to cut costs amid declining foot traffic — Michael Kors announced plans to close up to 125 stores after a poor performance in its last fiscal quarter (ended April 1), which saw a 14% year-over-year (YoY) decline in same-store sales.
- Meanwhile, companies are teaming up to boost sales as they struggle to achieve organic growth in the stagnant market. Coach agreed to buy Kate Spade in May for $2.4 billion, in a bid to acquire the company’s strong millennial following. Kate Spade had been struggling to improve profit margins for several quarters.
However, a return to double-digit growth will require creating digital presences capable of standing up to thriving e-commerce pureplays. Online sales of personal luxury goods demonstrated strong growth of 13% YoY in 2016, even as the overall market remained lackluster, according to a study by Bain & Company. And with millennials gaining more disposable income, online sales are likely to become even more important to this segment going forward. Nonetheless, few luxury retailers have made an effort to create a strong digital presence — LVMH only just announced plans for its first multibrand e-commerce site in May — while digital-focused new…