Rekindling the lure of luxury post-pandemic!
• The global luxury industry has been significantly impacted by the onset of the COVID-19 pandemic.
• Bain and Company predicts that the global personal luxury goods market is set to contract between 20 – 35% in 2020.
• The pandemic is likely to usher in a major change in consumers’ mindset and the value system that underpins their luxury buying decisions.
• Luxury brands are exploring a gamut of marketing approaches including innovative ways of digital engagement, reorientation of supply chains, and tapping the lower end of the luxury market.
From tourism to hospitality to automobiles to pharmaceuticals to green energy – there’s hardly any sector that COVID-19 has not cast its shadow on. And this is true not only in case of India, which is one of the top five countries across the globe most affected by the Coronavirus, but also the rest of the world in general. The global luxury industry is no exception.
The first reverberations of the storm started appearing when COVID-19 spread through China, the country whose citizens accounted for 90% of global luxury market growth in 2019. When the virus arrived in cities like Paris & Milan – considered as the Mecca & Medina of the international fashion community – the effects on the global luxury industry augmented. Not only were many global luxury brands headquartered in these cities, they also have key suppliers here. Soon enough, luxury brands started facing the additional challenge of initiating operations where possible amid national lockdowns.
Moreover, with curbs on international travel, they have lost a significant source of revenue. Nearly 20-30% of the luxury industry’s revenues are engendered by consumers making luxury purchases outside their home countries, according to McKinsey & Co. For example, in 2018, Chinese consumers took more than 150 million trips abroad & purchases outside the mainland accounted for more than 50% of China’s luxury spending that year.
The fact that the pandemic has certainly shaken some of the foundational aspects of the luxury industry is evident from an estimate by Bain and Company. The study predicts that the global personal luxury goods market is set to contract between 20-35% in 2020 and a recovery to 2019 levels will not occur until 2022 or 2023.
Post pandemic demand
The industry remains divided about what kinds of effects the pandemic would have on the demand for luxury goods. Some estimates suggest that with gross domestic product, employment (and therefore spending power) and financial markets under severe strain, there will be a consequent plunge in consumer confidence and willingness to spend. The pandemic is likely to usher in a major change in the consumers’ mindset and the value system that underpins their luxury buying decisions. Thus, the coronavirus could be a black hole for the industry, according to one school of thought.
On the other hand, there are some who believe that signs of recovery have already started appearing. Empirical evidence from China – that represents around 35% of luxury goods consumption – supports this. Several luxury goods companies registered an uptick in China this spring as people emerged from months of lockdowns. For example, high end jewellery brand Tiffany stated that retail sales in China surged around 30% in April and 90% in May compared to the same months last year. This has sparked what some analysts have called a trend of “revenge spending” — the release of pent-up demand once people aren’t forced to stay home.
Dr. Dina Khalifa, Lecturer in GCU, London believes it will be a mixed bag:
“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”.
Gearing up for a COVID-resilient tomorrow
In a bid to expedite the sector’s recovery, marketers across industries must prepare themselves for the future by identifying gaps, turning weaknesses into strengths and strengths into distinctive competences. Every aspect of the market, starting from creation to distribution & marketing will need to be re-imagined to suit a changed world.
(i) Supply chain reinvention
Diversification of the centres of production as well as producing goods that are increasingly decoupled from the rhythm of seasonal collections. Product diversification is a useful pivot that some prominent names in the industry have already deployed. From Louis Vuitton to Loreal, luxury retailers have altered their production principles from making perfumes to sanitizers and designer wear to medical gowns and masks.
(ii) Keeping up with changing consumer preferences
Brands must rethink about the evolving demands of customers. One trend that is likely to stay is ‘going green’. Conspicuous consumption is likely to be supplanted by conscious, responsible and sustainable luxury. Timothy Jackson, Director of The British School of Fashion at Glasgow Caledonian University in London, explains:
“Demand will move away from the frequently replaced products to beautifully crafted, sustainably sourced and high quality items, which exhibit status from socially responsible values.”
Another trend that the industry needs to adjust to is creating products tailored to local preferences. This is because with the recent travel restrictions, the industry will need a new approach to attracting luxury shoppers. Brands can focus on creating tailored local experiences to appeal to the indigenous shoppers.
(iii) Revamping marketing strategies
Brands need to rethink about the way they engage with their customers and market their products. One thing that they definitely cannot ignore is enhancing their digital presence. By deploying virtual showrooms, brands may able to create hedonistic experiences online for their customers and compensate for a lack of physical experience. AR devices such as Microsoft HoloLens can be deployed to create at-home experiences in collaboration with luxury brands. Brands should also adopt new ways to engage with their customers. They may use tactics like virtual shopping session, online make-up classes, fashion shows or fitness sessions to engage and interact with the consumers.
Finally, brands must consider introducing entry level brands & act as a bridge to luxury. This is crucial at this point of time, when employment and financial markets are under pressure resulting in low consumer confidence and willingness to spend. If planned carefully, this could even lead to creation of niche segments and opportunities for new sub-brands to emerge.