Lure of luxury is amplified in times of uncertainty
Dr. Dina Khalifa, Lecturer in GCU, London notes that COVID-19 is not likely to impact the consumption of High-Net-Worth individuals, though it will affect the HENRYs. This is attributed to the fact that consumers compensate for their perceived loss of control by engaging in conspicuous consumption as a means to re-establish their sense of positive identity. She adds that brands must strategize new ways to entice their patrons to visit their stores, while also harnessing technologies like AI, AR & blockchain.
IBT: How has COVID-19 affected consumer sentiments in the luxury market in your view? How is this expected to impact the luxury market across segments?
Dr. Dina Khalifa: I believe that the impact of COVID-19 will be much more pronounced in the luxury sector given the economic implications on millennials, many of whom are furloughed. The luxury market is mainly driven by the aspirational middle class millennials, often referred to as “HENRYS” (i.e. High Earners Not Rich Yet). As such, among this segment, a reduction in their discretionary income will significantly lower their luxury expenditure.
However, among the High-Net-Worth Individuals (HNWI), I assume luxury expenditure would not be significantly reduced. This is in part due to the psychological impact of the pandemic which may drive consumers to compensate for their perceived loss of control by engaging in conspicuous consumption as a means to re-establish their sense of positive identity. This prediction is in line with existing research on identity threat literature, which documents the phenomenon of “compensatory consumption” following negative personal experiences.
IBT: Will the woes of luxury brands be over as lockdowns soften and social distancing norms are relaxed? Will “conscientious value” displace “conspicuous value”?
Dr. Dina Khalifa: As previous recessions have shown; the lure of luxury is quite amplified in times of uncertainty. True luxury represents aspiration, excellence and timelessness, all of which seem quite desirable when consumers are selective about how to spend their money during hardships. The double digit growth witnessed by some luxury brands such as PRADA and Hermes upon their reopening in China signals hope for quicker recovery.
Having said that, I believe there will definitely be a shift in consumption values, a change that has already started before the pandemic and will now be accelerated; wherein consumers demand more transparency and expect the luxury brands they invest in to be sustainable.
IBT: Now that a lot of consumers are preferring to stay away from malls, what market strategies can be adopted to keep alive the hedonistic appeal of brands among customers?
Dr. Dina Khalifa: Another significant trend that had emerged prior to the pandemic and has now accelerated is the shift in consumers’ attitudes towards physical stores. An exodus of customers from shopping malls in the United States bears witness to this phenomenon. This in turn, requires strategic thinking to reposition the role of the physical store beyond making a sale.
Luxury brands must think creatively and invest heavily in the most recent technological developments to shift the focus of their physical stores and create exceptional hedonistic experiences that entice consumers. Many strategies can be adopted to attract consumers to visit stores such as hosting art exhibitions and live artisanal workshops to engage the consumer with the brand and build a stronger relationship. Other in store events can be created periodically to motivate consumers to consider the store as a “third place”.
IBT: How can brands leverage technologies to weave experiences that fit well with the luxury marketing narrative and enhance the connect with their customers?
Dr. Dina Khalifa: Luxury brands must invest heavily in the most advanced technological innovations, if they want to keep up with tech savvy younger generations. AI, augmented reality and blockchain are few technologies that have huge potential to transform the business models of luxury brands. The implications of these technologies can manifest in various services such as Personalisation, AI Merchandising, Visual Search, Virtual and Augmented Reality and AI for customer service.
IBT: What supply chain reinvention strategies should luxury brands gear up for to embrace the new normal?
Dr. Dina Khalifa: Localization will be one of the biggest supply chain strategies; true luxury strategy entails local manufacturing and investment in craftsmanship. However, as luxury brands became more global, so has the sphere of their supply chains. With international lockdowns and major disruptions in global supply chains, luxury brands have realized the danger of relying heavily on overseas suppliers and therefore post pandemic strategy will entail a return to traditional luxury business strategy.
IBT: What do you see as ‘a new normal’ for luxury retail stores? How can luxury brands carve more customer-centric digital solutions while unlocking the full potential of omnichannel retailing and mastering digital marketing?
Dr. Dina Khalifa: The new normal will represent a seamless shopping experience that spans both physical and digital shopping environments. A heavy investment in AI and artificial intelligence should be evident in physical stores to create exceptional in store experience. Big data and machine learning could be leveraged to create a profile for each consumer that would facilitate predicting their preferences and creating customized personal experiences. The role of in store sales assistants will have to be amplified to supplement the digital technologies and create an intimate experience.
Dr. Dina Khalifa has recently completed her PhD degree on Luxury Fashion Brand Marketing at GCU London. Her research focuses on identity threats and the psychological motivations that drive luxury consumption. Her dissertation was nominated for Best dissertation award at the 2016 KSMS Doctoral Dissertation Competition. In addition, one of the conference papers based on her PhD thesis has been nominated for the best paper award in a recent conference in Shanghai. Dina has also published papers in referred journals and has work under review presently for the Journal of Business Research (ABS 3*) and several others.
She is a highly skilled academic with more than 8 years of teaching experience in both Egypt and the UK. Her teaching experience includes both undergraduate and postgraduate degrees. She has taught a number of marketing and management courses such as consumer behaviour, fashion marketing, integrated marketing communications, research methods, SPSS, marketing research, and strategic management. In 2015, she was nominated for ‘teaching award’ by GCU students association.