FIFI PETERS: Now is the time for us to talk about the luxury goods markets, or the ‘soft life’ as it is commonly known on the streets of Instagram. If you’ve ever been to the Sandton City Louis Vuitton store, you know that there is always a long line of people outside trying to get in. It amazes me every time I see this, and I saw it quite a bit, even during the most difficult times of our lockdowns last year. Now I get it, there was a constant queue because apparently Louis Vuitton, LV, is South Africa’s favorite luxury brand, according to a report from Luxity.
We have Michael Zahariev, co-founder of Laxity, to tell us what makes Louis Vuitton the most beloved brand.
MICHAEL ZAHARIEV: Thanks, Fifi. It is a pleasure to be with you today on the program.
FIFI PETERS: Equally. Thanks for your time.
MICHAEL ZAHARIEV: There are many reasons why Louis Vuitton is one of the most beloved brands in South Africa. In fact, it is the most loved luxury brand internationally right now. They are also one of the only brands on our top five list that have been around South Africa for a long time. There are many reasons why it is number one.
When we look at South Africa in particular, it is actually twice as popular as Gucci, which ranks third on the list and is the next best available in South Africa.
FIFI PETERS: Right. I see that in the top five you have a Burberry that has now entered the top five for the first time. I remember a time when Burberry was one of the most copied brands; we call him … Kong [1:54]. They all carried those checks that became popular back then, but I think it was the quick bottle rule …… But this time, how has Burberry regained its appeal in the luxury space?
MICHAEL ZAHARIEV: Well, Burberry has been on a modernization journey internationally. Obviously one of the things these brands must do frequently is stay relevant. They need to keep modernizing their brand and attract younger generations.
So in the last two years we’ve seen a new Burberry monogram print. It has become much more attractive. They’re ditching that check, you know, that famous check brand and moving from that to a much more modern design. I think that translates very well in the South African market, as well as the international market, which has increased its appeal globally.
FIFI PETERS: I wonder if the departure from that famous check was due to the fact that it was so easy to replicate. But Michael, generally speaking, please tell us about the trends in consumers buying luxury goods that you have witnessed during the pandemic, which for many people has been a difficult time combined with a loss of income.
MICHAEL ZAHARIEV: Yes, of course. I think it is one of the saddest things about the pandemic. What we are starting to see now is what they call K-shaped recovery, where people on the individual high net worth side are starting to get rich, while the poor are starting to get poorer. That has led to the luxury industry really booming as these high net worth individuals have very few other areas to spend their money on. They cannot spend as much on restaurants and travel and they need to reallocate that expense, which they have not lost. in revenue – in the luxury industry.
So we’ve seen great growth in terms of all of these brands reporting record numbers for the first half of this year. This is translating into the second-hand goods industry, which many consumers flock to because of easier access to flexible payment terms for goods, and because some of the high-end individuals have been adversely affected by the pandemic, selling many of their assets. luxury market second-hand goods industry items at lower prices.
FIFI PETERS: That is very interesting. I see that the used luxury market is much more popular in developed markets. You say it’s getting a bit more popular now, but how does South Africa’s second-hand luxury market compare to what you see elsewhere?
MICHAEL ZAHARIEV: South Africa’s second-hand luxury market is essentially booming. It has been a slow assimilation. As you say, it is a fairly established market abroad. But if we compare, for example, our results as Luxity, the largest second-hand luxury reseller, even during the height of the pandemic last year, we still saw 47% growth and during the first half of this year we reported 117%. increase.
Now when we compare that to the biggest player in second-hand goods internationally, they actually saw a 9% drop last year, and they’ve shown a recovery of just 90% this year. So there is definitely growth due to the smaller market within Africa, but South Africans are definitely embracing it.
FIFI PETERS: I understand that people want to buy luxury items for attractiveness. I mean, before you bought a Gucci or a Burberry or a Louis Vuitton, knowing that you were going to go out somewhere and that they would see you. But given social distancing and dating restrictions, it is clear that people are buying luxury for other purposes, purposes that could possibly include investing.
MICHAEL ZAHARIEV: Yes. And that is definitely something that we have found and something that is growing as the market matures in South Africa. There are certainly some pieces that act as investments, specifically in South Africa, from brands like Chanel and Hermès, that are not available in South Africa. What we have really seen is that the prices of these items, because they are not available in South Africa, have been exacerbated by the fact that the pandemic has limited access to them. So we have seen Chanel’s second-hand price grow 17.25% this year alone and most of these items are trading between 80-90% of current retail.
FIFI PETERS: That’s in the resale market, you say?
MICHAEL ZAHARIEV: Yes, exactly. What is important to understand, I think, is a car, for example, when you buy it, as soon as you buy it, it will depreciate and it will continue to depreciate every year. The price of investment bags is based on the current retail price. So as retail today grows at an average of 15% annually, you’re getting that 15% annualized return.
As an example, we recently sold a Chanel handbag that had been bought in 1997 at a price of about R5,000. Now it retailed for R59,000. So that’s over 1000% return over the 25-year period. .
FIFI PETERS: That is incredible. Basically these items, if you are not looking to resell them, can potentially provide protection against a very volatile and fluctuating currency.
MICHAEL ZAHARIEV: Yes, exactly. They are one of the best exchange rate hedges. If you compare the retail price of Chanel, it grew by 5.2% this year, and that is because the coin is gaining traction. What we do at Luxity is that we have been comparing the growth of a Chanel flap bag to that of gold since 2008, and in fact we have found that since 2018 Chanel has almost exactly represented the return of gold, or above the return of gold. gold. – what I would have offered. That’s a Chanel bag.
FIFI PETERS: That is incredible. I always like to contrast. Now we are talking about the winners, the brands that have gained appeal in the luxury goods markets. Any losses or brands that fell out of favor?
MICHAEL ZAHARIEV: Well, definitely in South Africa during the recession we saw a Prada shutdown, which is interesting because in terms of its popularity, Prada still ranks number five on our list. Therefore, it is difficult to say specifically whether brands are falling out of favor or whether a specific brand strategy is being adopted.
For example, Chanel, which I keep mentioning, the third most popular brand, has no stores in Africa. Therefore, there are many complexities in breaking down decisions, which are not always broken down into how popular the brand is in a given region.
FIFI PETERS: Michael, thank you so much for making us wiser about the dynamics of the ‘soft life’ and how potentially a Chanel bag can give you the same value creation as gold. Interesting.
That’s Michael Zahariev, co-founder of Luxity.