When COVID-19 first started taking hold around the globe, many experts jumped to forecast the impact a worldwide shutdown would have on virtually every industry. According to a revised report by BCG, the lockdown would result in the fashion and luxury goods categories losing in excess of $600 billion, or 25%-35% worldwide in 2020.
Following widespread closures, most brands are looking for ways to stem their losses. As companies set their focus on reopening retail locations, they are also finding they’ll need to adapt to newly established consumer behaviors and preferences. Certain categories, such as athleisure and footwear, appear well-poised to bounce back quickly; however, analysts predict that it may take the luxury market more than two years to recover fully.
To best weather the storm, luxury brands must reconsider what, when, and how they sell, and recalibrate their businesses to meet the challenges of the shifting sales picture.
Before to the pandemic, retail was already feeling the weight of change brought on by shifting consumer behavior. The much-fabled retail apocalypse, mostly due to the ongoing surge in online shopping, has been hastened, and more companies are accelerating their digitization strategies.
Around the world, the lockdowns caused a surge in first-time ecommerce shoppers. In the US, 14% of ecommerce shoppers bought fashion online for the first time during the pandemic. In China, which experienced a similar trend during the SARS outbreak–the number was 17%. Analysts expect a 160% increase in purchasing from new and low-frequency users.
Two key trends that are impacting the luxury market specifically are Asia’s emergence as a top luxury spender and the rise of affordable luxury.
According to Bain Capital, China accounted for 90% growth in the personal luxury market in 2019. Post-Covid, it continues to be the Asian market that rises to the top for prioritization of luxury spending. During the outbreak, a quarter of global consumers delayed purchasing luxury products. By comparison, India had 37%, and China had 31% state they delayed buying luxury goods. Post-outbreak, the demand for high-end products is prioritized in these two countries more so than anywhere else in the world, with 10% in India, and 7% in China, vs. a global consumer average of just 6%. Smart luxury brands will focus efforts in these markets.
A significant factor in intent to purchase, however, relies heavily on consumers’ pocketbooks. The pandemic had a dramatic impact on the global economy, and there’s still a great deal of uncertainty around how that will continue to affect individual spending. In the US, for instance, 81% of consumers expect there to be a recession, and more than half expect to spend less on fashion as a result. Experts predict a rise in affordable luxury as status-seeking consumers look to adjust to their tightened purse strings.
For those online consumers who noted that they delayed purchasing luxury goods during the outbreak:
- 40% said they would wait for a promotion or offer
- 23% said they would look for a cheaper option from another brand
- 15% said they would buy the product they originally wanted at full price
Reset, Streamline, Invest
Adapting to the times and changing attitudes means companies will need to redefine the meaning of luxury. To meet and surpass consumer expectations, brands will need to begin operating more sustainably, focus on diversity and inclusivity both internally and publicly, invest heavily in digital capabilities, and integrate people with that technology.
You can streamline by*:
- Adjusting the distribution footprint, to adjust to retail location consolidation and closures
- Optimizing the supply chain to make it more effective and agile
- Resetting costs to adjust the P&L
- Rethinking the fashion calendar
- Implementing a zero-based organization redesign
You should invest in:
- Localizing ecommerce in Asia to capitalize on the growing market, or finding a partner who can do it for you
- Addressing the changing consumer
- Clienteling 2.0
- Accelerating the digital ecosystem
- Building an AI-driven technology backbone
- Bringing fresh skills to the workforce through diversity and inclusion
Ready to future-proof your luxury brand? We can help. Contact our Sales Team.
*Source: Boston Consulting Group