What Will be the New Normal in Luxury?
By Caroline Brown
The global luxury market is expected to contract 25%-30% in 2020 due to the impact of COVID-19. While some key luxury markets, specifically the US and Europe, are still in the middle of lockdown, China has begun to recover. Chinese consumers make up around 27% of global luxury sales and have been the main growth engine in luxury in recent years. One Hermes store in China recorded sales of $2.7 million in its first day of trade post-lockdown in April 2020. Some brands may be hoping for similar acts of revenge buying in other parts of the world once lockdown is lifted – but this may be too optimistic.
Traditionally, the luxury market depends heavily on tourism. Air travel has been reduced by as much as 90% and, even when it is legally allowed, many people may be too scared to travel for some time. Some have predicted that air travel may not bounce back for five years.
Headlines have been dominated with how brands are trying to survive this storm, but the conversation has now started to shift towards plans for reviving the business afterwards.
How do luxury brands stay relevant?
The luxury industry began a digital transformation in the last few years to better connect with younger consumers. The general strategy involved further investment in digital, while continuing a strong physical retail presence. With the temporary closure of brick and mortar stores due to the pandemic, many brands are accelerating their existing digital strategies to keep open sales channels during the lockdown.
This may be highly successful because more people will be spending a larger proportion of their time online. L’Oreal, for example, have launched their own Snapchat lenses.
Amazon is booming as a result of the pandemic. Many luxury brands chose to stay away from Amazon to maintain exclusivity and may be wondering now, is Amazon the answer to all their prayers? Having said that, consumers are generally not looking to purchase luxury goods at the moment, but instead are flooding sites like Amazon to purchase everyday items. Luxury brands therefore need to use social media to engage with consumers during the pandemic.
The luxury industry needs to be ready to address a global recession. As people worldwide struggle economically, consumers are beginning to scrutinize the social values of large, wealthy companies. Many luxury brands have chosen to assist the COVID-19 response by donating funds or using their own facilities to produce much needed health care equipment. Ralph Lauren donated $10 million to the relief fund, and beauty companies such as L’Oreal and Coty have begun to produce hand sanitizer. Fashion brands like Chanel and Dior are making PPE equipment for front line workers. Luxury is all about heritage and now is the time for the luxury industry to showcase their true values.
What will be the new consumer?
There is a loss of consumer confidence and a reluctance to spend on luxuries. When lockdown measures are loosened, the question is “will consumers continue to shop as they did before or will consumer behavior change?”
Some digital shopping habits forged during the lockdown will stick. If brands put their heads in the sand and wait for stores to open, there is a risk that they will lose their traditional consumers to more digital-savvy brands and may never get them back.
Sustainable luxury has been a concern across the industry, and there is no evidence that the pandemic is reducing consumer interest in it. Companies cannot afford to relax their sustainability efforts, consumers will continue to be invested in traceability and the ethics of products.
Those consumers who have been significantly hit financially, may continue to shop from the same brands as they always have, but may choose products from a less costly product line. Luxury is all about exclusivity, but there may need to be a shift to be more inclusive and include more accessible price points in order to retain their consumers.
What is the “new normal?”
There is much speculation on what the world will look like after this crisis is over. Luxury brands should be preparing by looking at both the short term and long term. Clarins are using the concept ‘What Now, What Next, What If’ in order to better prepare themselves for this ever-changing environment. What Now is looking at their response to their crisis and how to continue to engage their consumers through digital media. The short-term effects and preparation for re-opening the business are considered ‘What Next’, and ‘What If’ looks at the more long term impacts of COVID-19 on the business.
Pre-pandemic, experiential luxury was considered to be the best way to engage directly with consumers. It is clear that retail is not dead, and that some direct interaction with consumers is still desired. Luxury brands need to start planning now around how, and which stores they will open. One thing to consider is whether consumers will start shopping closer to home rather than traveling to larger flagship stores in urban areas as they did in the past.
Testers and trying on clothes may also no longer be allowed, which will lead to some limitations in the industry. Brands need to consider what is the right product offering during these times and continue to be flexible. There may also be new opportunities to be innovative.
Reality is changing daily, and luxury brands will need to continue to be agile and more innovative – it will be the survival of the fittest.