Barcelona and Madrid are the most exposed cities: between them alone, they account for 83% of international visitors’ spending in Spain.
Luxury has to speak Spanish again in Spain. The sector, which generates some 9,200 million euros in the country (including gastronomy), is facing a critical year without its star audience: international tourists. The special campaigns for the Chinese New Year, or the armies of foreign employees with languages who attend the stores of Serrano or Paseo de Gracia, will be of little use. If the sector wants to save the year it must look to the national public.
In a country with a per capita GDP of 23,979 euros, luxury lives mainly on the foreign customer. In fact, the shops of the main brands are concentrated in the tourist poles of the country: Barcelona, Madrid and, to a lesser extent, Marbella and the Balearic Islands.
Within luxury, personal items are the segment most exposed to tourism, according to the study Spanish Excellence Today&Tomorrow, prepared in 2018 by Bain&Co. for the Círculo Fortuny. Tourism was also the growth engine of the sector in the country and the main lever to be activated, according to Bain, to continue promoting its expansion.
According to the latest data from Global Blue, which covers tax-free sales in Spain, fashion and accessories account for the bulk of purchases, with 62% of spending in the first half of 2019. Watches and jewellery account for 25% of total sales to foreigners.
Only Barcelona concentrates 50% of the expenditure of foreign tourists in Spain, followed by Madrid, with 33%. Malaga and the Mediterranean coast (mainly Valencia and the Balearic Islands) account for another 6% and 5%, respectively.
But few tourists will arrive this year. According to forecasts by the World Tourism Organization (Unwto), tourism will be reduced by 20% to 30% this year, which is equivalent to between 290 million and 440 million fewer travellers. This is the largest historical decline for the sector: after 9/11, tourism stagnated and during the Sars pandemic, the number of tourists dropped by only 3%.
“I think that luxury brands have recently become so asianized in their creative approach to the Chinese millennials that they have neglected the senior Western consumer, who has become emotionally detached from these brands,” says Silvia Ortega, a luxury expert and professor at Isem. “Trying to win back the local consumer all at once seems very difficult to me,” says Ortega.
However, the expert also notes “a current of sympathy towards luxury made in Spain, more attached to growing values such as contemporary craftsmanship, sustainability, heritage, know-how, local consumption, transparency, tradition and innovation, excellence and respect for the environment,” so the crisis could be an opportunity.
“We are facing a great opportunity for the rebirth of local value proposals, made in Spain, the result of a shared feeling of supporting the local to revive the economy and to prioritize brands with purpose”, he adds.
“There are brands that could close for good in Serrano and Paseo de Gracia”, says Julio Collado, head of the human resources consultancy Luxetalent. The expert anticipates that temporary contracts will be discontinued and that there will be an adjustment of hours among the indefinite ones.
In addition to trying to make the purchase smooth despite the security tasks, which will motivate the emergence of new profiles such as the greeter, Collado believes that other professionals in the store will also become more important as the CR Manager. “It is the one who manages historical customers and VIPS, and will become more important to capture flow to the store, diminished by the lack of tourists and fear of coronavirus,” says Collado.
For María Eugenia Girón, director of the Observatorio del mercado Premium y productos de prestigio at IE University, both in-store promotion and employee training will have to change, focusing on customer service driven sales: a hyper-personalised service.
“This will probably be a mechanism that luxury retail will rely on to strengthen local customer relations and sales,” says Giron. In this sense, the winners will be the retailers who have a large database and know how to approach their local customers in a personalized way.
Lluís Sans, head of Barcelona’s Santa Eulalia store, defends that in his case the lack of tourism does not affect him as much because two thirds of his clientele is Spanish, but he believes that consumption will change.
“Buying fashion is not a big expense for our customers, although it is true that during the crisis consumption is less ostentatious and there is a tendency to more sober products,” says Sans. In addition, the company has launched new services for its national client, has promoted online and has enabled the collection of purchases from the car. “Some people will be afraid to go shopping,” admits the businessman.
Lessons from France and 2008
This is the first time that tourism has come to a standstill in this way on a global scale, but Spanish luxury can learn from other international experiences. The most recent is when, in 2015, tourism in Paris suffered in the wake of the terrorist attacks. In the world’s most visited city, foreign visitors account for 70% of the sales of some fashionable shops.
Brands had to turn to a customer they barely paid attention to, their neighbours, and the giants suffered the impact on their accounts. LVMH, the world’s largest luxury group, increased its comparable sales by only 3% in the first quarter of 2016, compared to the 4.5% forecast by analysts, and sales in the city’s department stores fell by 20%.
This time, the drastic drop in the number of tourists will have to be added to the global economic crisis, in which, unlike 2008, the sector will not be able to count on China to sustain sales.
In the Great Recession, which did not affect the Chinese market, the global luxury sector shrank by 7.5%, the equivalent of 12,000 million Euros, although it recovered after only one year, according to data from Bain. This time, the double shock of internal and external demand will cause a major cataclysm.
According to the latest data from Euromonitor, sales will fall by 18% in the second quarter alone, moving away from the trillion dollar barrier that initial estimates were that it should reach this year.
The most affected market will be the one that saved sales in 2008, China, with a fall of 22%, equivalent to 68 billion dollars. It is followed by the United States, where 52,000 million dollars in luxury products will no longer be sold.
“Luxury buying behaviour, channel dynamics and travel plans are inevitably changing as a result of the closure,” says Fflur Roberts, head of luxury goods research at Euromonitor International.
“With the pandemic having a major economic and psychological impact, consumer sentiment will be severely dampened and premium-priced items are likely to be affected,” he adds.
However, the expert argues that “the market for luxury goods is likely to recover relatively quickly in the medium term, with online shopping increasing even for those who were previously skeptical.
Author: Iria P. Gestal, Modaes