Bernstein’s Luca Solca on why China’s carefree luxury spending era is over

Luca Solca has run a luxury group, restructured it and spent more than a decade on the sellside dissecting how these businesses work. That mix of operator and analyst is rare, and it helps explain why he has ranked among the top luxury goods analysts in both the Institutional Investor and Extel surveys for nearly a decade, topping both surveys in 2017. Today, as Managing Director and Global Head of Luxury at Sanford C. Bernstein — a research house known for equity coverage across the US, Europe and Asia — he is the analyst whose calls on LVMH, Kering, Richemont and the rest of the sector carry weight in boardrooms and on trading floors. Solca came to research from inside the industry. He spent five years as a senior associate at Booz Allen & Hamilton, then six as a partner and managing director at the Boston Consulting Group from 1996 to 2002, advising luxury, consumer and retail clients across Europe. He left consulting in 2002 to run a publicly traded Italian fashion and luxury group as executive vice chairman, restructuring and refinancing it over the next three years. In the two decades since, he has worked the sellside, with a spell as a director of research and a stint as managing director at Exane BNP Paribas before returning to Bernstein. He holds a magna cum laude MBA from SDA Bocconi. Jing Daily: What has surprised you most in your research on China’s luxury market this year? Luca Solca: At last it is reviving, albeit gently. I found a lot of smiling faces among brands and retailers in Hong Kong that I hadn’t seen for a long while. Traffic data and the vibe in Shanghai was also good. JD: Has luxury demand in China stabilized, or is there volatility ahead? LS: It has now been stabilizing for almost four quarters. The revival appears nevertheless still rather tentative. Purchases concentrate around major dates and festivals. Consumers seem cautious otherwise. JD: Are younger Chinese consumers behaving differently from previous generations? LS: They are more guarded when it comes to spending money. For starters, they have less of it, as they don’t always find a job. When they find one, they see their salary increase and career prospects more muted than their peers thought 10 years ago. This cohort used to spend money as there was no tomorrow. Not any more. We will see if more buoyancy appears, as the Chinese economy revives. JD: You advised luxury companies at BCG and later analyzed them as an investor. What are the best CEOs doing differently in China today? LS: They are building strong integrated teams with international and Chinese executives working together. Superior local insight and a deep understanding of a brand’s DNA have to go hand in hand. JD: Has your view of luxury changed over your career? LS: It has become a lot deeper. The privilege I have is that I can research what I think is important. Intellectual curiosity and a drive to solve unanswered questions is what motivates me. JD: What separates a good luxury analyst from a great one? LS: To be great in anything, I fear, you need to obsess and dedicate most of your energy to it. So passion is vital. Then, I think, you must go out and about, talk to people, go to the stores and not just spend your time behind an excel spreadsheet. JD: How much time do you spend on products and marketing versus financial results? LS: Financial results are important. I dedicate 20% of my research time to them. Eighty percent is dedicated to understanding the business. JD: Is there a question you always ask management teams? LS: Yes. If they know how their ROIC has evolved and if they care. JD: How can luxury companies sustain growth in China today? LS: By capturing consumers’ imagination and winning on consumer relevance — Moncler’s Genius event in Shanghai and Louis Vuitton’s “The Louis” are a case in point. JD: What data is most useful for tracking that growth? LS: Social media traction remains key in measuring brand temperature. JD: What early metrics should a brand watch when selling in China? LS: Same as in other markets: consumer engagement. JD: What will luxury look like in 10 years? Are we seeing early signs of a shift? LS: Deglobalization and AI could make luxury more polarized. We have seen signs of this in the past 10 years already. Jing Daily presents C-Suite Visionaries — an exclusive interview series spotlighting the most influential executives at the helm of today’s leading brands in art, fashion, commerce, and culture. Get inside the minds of the decision-makers driving growth, innovation, and cultural relevance at the highest levels.

Bernstein’s Luca Solca on why China’s carefree luxury spending era is over

How Bottega Veneta weaved China’s forever it bag

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Bernstein’s Luca Solca on why China’s carefree luxury spending era is over

How Bottega Veneta weaved China’s forever it bag