Updated: May 9, 2022
What if I told you that luxury will not be the same again? In the wake of the COVID19 pandemic, luxury brands have been forced to shut their stores and offices without any real preparation and planning, but this isn’t like before. In the past, we have seen events such as the Great Recession or World War II, which forced luxury brands to respond only in the immediately impacted continent or countries, but this time the impact is bigger. This impact expands from not just the retail stores and head offices, but much wider in terms of the full supply chain and the distribution networks. Today we really are ‘global’ and the Covid19 is now a global threat, which means luxury brands are not only forced to take hits and losses in the affected continents and countries, but the disruption has now expelled into a global impact.
Luxury brands are faced with mounting pressures as experts now forecast that the luxury market globally will contract by circa 25%-30% year-over-year in the first quarter of 2020 as social distancing takes place. There will be a reduction in inventory in 2021 as supply is corrected for the demand disruption in 2020, but it does not stop there; the impact on the real economy – job losses, GDP decline, and so on is set to be extensive. Luxury shopping by travellers will take even longer to recover, as countries maintain restrictions on travel to prevent further waves of the outbreak, and some consumers will remain nervous about flying or cruising.
Equally, the threat of consumers' psychological impact on their well being is unprecedented. If we look back to World War II, the Great Recession, or events like 9/11, we have noticed from consumers that when there is a sense of insecurity at a very basic level, luxury consumption is slow. Once the immediate threat lifts, consumers come back stronger and backlash against all that anxiety. This happened after World War II, 9/11, and even after the Great Recession.
But this time it’s different, the luxury consumer has changed. Chinese consumers are more affected by COVID19 than they were in the credit crunch; they are unlikely to ride to the rescue of luxury sales quite in the same way they once did after global events. After the 2008-2009 global financial crisis, increasingly wealthy Chinese consumers kept spending when Western demands were down.
Our luxury consumers have changed, and when consumers demand comes back, they will have a new set of value and meaning:
An accelerated shift to digital and online shopping: luxury brands always maintained a sense of pride in showcasing their brand ethics, values and mission to the consumer through the extraordinary shopping experience delivered to their consumers in the retail stores. But as we return to physical stores, digital will need to be key - especially as consumers are now used to the digital experience
Heightened environmental and social consciousness: there has been a rise in consumer concern about sustainability and social issues that has come to light from COVID19, and this expands across the end to end product life cycle and supply chain. A higher number of consumers in demographic groups will now be taking this more seriously.
Mind-set: Brands ethics is now so important to the consumer, prioritising purposeful brands, and brands that did not overexpose their product offering and kept to their core over and beyond their timeless signature collection. The cultural diversification strategy needs to cater beyond selling the same-old, high-priced stuff in China, Russia, India, and the Middle East.
In the post-pandemic world, the luxury consumer will not be the same, but the real questions top leaders of luxury brands will need to ask themselves, "are we prepared to take on the new luxury consumer?" "Do we need to future proof our business model in ways that go beyond simply expanding into different countries and cultures?" "Are we prepared and ready to compete in a tough environment and economic climate?"
The impact on luxury consumption is only temporary with no real long-term structural growth opportunity. On the other hand, the luxury industry and the consumer as a whole is changing but is it changing for the better, and better yet, are you prepared?