The luxury retail industry has undoubtedly faced constant pressures amid the pandemic. Nevertheless, industry players tend to remain optimistic as they navigate towards a more rigorous understanding of retail data, and the luxury sector promises signs of recovery and growth, aiming to adapt to The New Normal.
The scourge of the coronavirus has significantly disrupted the retail sector. Ongoing lockdowns forced physical stores to close for months, and supply chains collapsed due to emerging mobility restrictions. With reduced mobility, especially internationally, sales to the sector’s main customer base have significantly declined.
Lockdowns, however, not only kept stores closed but also “trapped” consumers at home. This is precisely why luxury houses are restructuring and charting their course for the industry’s recovery after the COVID-19 crisis.
Let’s not forget that in the third quarter of 2020, LVMH announced its return to pre-pandemic double-digit revenue growth in its fashion segment, mainly due to its efforts to re-engage the local Chinese market.
The increase in e-commerce activity significantly favored luxury houses, which quickly gathered information from prevailing trends and revitalized their online presence, even before the pandemic.
Post covid loyalty
Globally, 16% have discovered new luxury brands and more than 50% will remain loyal with disparity between markets.
“Do you agree with the following statements?”
Prada, for example, witnessed triple-digit growth in e-commerce channels during and after the initial lockdown, thanks to its investment in digital platforms.
Industry experts believe that the luxury market will rebound stronger after the crisis. According to McKinsey & Co., consumers are likely to return to full-price luxury goods relatively soon, much like they did after the 2008 global economic crisis, expecting luxury retail sales to grow from 1% to 4% in 2021.
However, who will survive after the successive negative impacts that the pandemic brings to the luxury industry? What are the critical criteria that will ultimately determine the crucial future of businesses?
The Impact of Brick-and-Mortar
The luxury industry heavily relied on physical stores to boost sales. Showrooms offer buyers a high-end experience commensurate with prestige and prices. So, when the COVID-19 crisis hit the market, it dramatically affected brick-and-mortar stores as they were forced to close for an extended period.
Given that many luxury stores are typically located in expensive areas such as London’s Mayfair and New York City’s Fifth Avenue, high rents quickly became a critical issue, prompting many to exit their contracts. Especially today, as many countries are in a second or even third lockdown, the circulation of brick-and-mortar stores is far from recovery.
Here, the lack of tourism played a significant role, negatively affecting sales, especially in luxury retail at airports, which, despite showing steady growth in recent years, has not recovered after the initial blow of the pandemic.
During 2021, we expect to see multiple diversifications in the previously established strategies of the luxury industry, primarily regarding the handling of brick-and-mortar impacts.
Luxury retail stores (intentions after lockdown)
“How much do you think you will spend in luxury retail stores after Covid-19 compared to before?”
E-commerce Reshaping the Luxury Market
Brick-and-mortar establishments have prompted the luxury industry to turn to the digital sphere. Several major houses have established or revitalized their presence online, either by using their own platforms or through third-party e-tailers like Net-a-Porter, Farfetch, and MatchesFashion. Online stores have been replacing physical ones even before the pandemic, while both online and brick-and-mortar businesses saw a decline after the global economic crisis of 2008. However, the “losers” of the story turned out to be the brick-and-mortar stores, which ultimately failed to regain their former glory. On the other hand, e-commerce experienced exponential growth in the years following, driven by the prevailing era and the promotion of smartphones.
Which sites are selling (during lockdown)
Overall during the lockdown/restricted movements period, how would you qualify your spend in the following distribution channels?
Today, the transition from physical to digital luxury stores is at its highest speed ever. With the COVID-19 crisis, traditional stores appear helpless as competitors with strong online presence consistently and visibly outperform them. E-commerce gives retailers the opportunity to expand their reach and leverage search engines to increase market traffic.
Given that operating an online store does not entail the same general cost as brick-and-mortar, online businesses save more money on strategic initiatives, such as unlocking new market segments and investing in more effective data analytics.
Focusing on e-commerce is no longer an option but a necessity for luxury houses. Even when the tough times are over, online luxury retailing will undoubtedly continue to grow as the pandemic will have irreversible shopping habits. Any luxury retailer that wants to survive and thrive after the COVID-19 era must prioritize new strategies and adapt to The New Normal.
Luxury houses know they cannot sit and wait for the market to recover on its own. Many react positively to disruption and take the right steps. Thus, based on the lessons learned from the pandemic so far, four critical criteria are being gathered to determine the future of luxury houses amid COVID-19.
1. Key: E-commerce
Today, more than ever, luxury companies must prioritize their digital businesses. E-commerce alone is not enough to offset losses and, by extension, the impact of lockdowns on brick-and-mortar or the decline in tourism, but it can undoubtedly mitigate the blow.
Ενδεικτική εικόνα της δύναμης του e-commerce.
The preferences of retail consumers have veered away from brick-and-mortar stores and have been leaning towards online retailers for quite some time now. This trend is expected to continue with greater intensity post-pandemic. According to Bain & Company, it is estimated that e-commerce, or online shopping, could contribute up to 30% of total luxury sales by 2025.
2. Restructuring of fashion shows and trade fairs
Trade fairs and fashion weeks have always been integral parts of the luxury industry, essentially presenting vital avenues for houses to maintain authentic relationships with both customers and partners. With the strict limitations imposed by the pandemic regarding gatherings, luxury houses have carefully explored alternative routes and innovative solutions.
The first digital fashion week globally was held in Shanghai in April last year, underscoring the necessity for innovation during COVID times. Since then, other major events such as the Spring 2021 runway shows, Couture Week, or the epic GucciFest have followed suit, creating digital showcases in live streams and, in many cases, with elements of virtual reality. Since then, the game has completely changed. The luxury industry has literally been reconstructed, creating robust and imposing digital connections.
Of course, our expectations, not only as consumers but primarily as professionals, extend beyond the presence of the pandemic, and we expect luxury brands to continue exploring more experimental and flexible digital marketing initiatives to reach more customers, save significant costs, and reduce their environmental footprint.
3. Reconnecting with local customers is a catalyst for change.
Forty percent of total expenses on luxury personal items come from consumers who shop outside their country of origin. Luxury market customers prefer to shop during their travels due to lower prices and the sense of authenticity that comes with purchasing from a house in its country of origin.
Reconnecting with local customers is another crucial step for luxury houses. Even when travel returns to our daily lives, it will take time for international tourism to recover. This provides an opportunity for houses to refocus their attention on local markets, to rely on tailored experiences, offer stronger incentives, and, even more importantly, to focus on a deeply meaningful engagement.
Even when travel returns to our daily lives, it will take time for international tourism to recover. This provides an opportunity for luxury brands to refocus their attention on local markets, to rely on tailored experiences, offer stronger incentives, and, most importantly, to concentrate on deep, meaningful engagement.
Τρομακτική είναι η μείωση του luxury τουρισμού στην Ευρώπη λόγω της πανδημίας.
Targeted campaigns are capable of recovering lost sales for luxury brands, cultivating a stronger storytelling narrative, and building a solid foundation for sustainable future growth, considering that the strongest target group of the luxury market consists of Millennials and Gen Z, characterized by an enhanced consumer consciousness. As we previously mentioned regarding the enviable Chinese business attitude that is at the forefront of the luxury market until 2025 and has strong activity among local consumers:
“It may be time to adopt some of the beneficial, unwavering, and integral Chinese consumer attitudes that readjust the business requirements of luxury, and not only globally, with a more innovative approach.”
4. Focus on Retail Data
As COVID-19 continues to dominate and disrupt the luxury industry, industry stakeholders are increasingly turning to verified data for answers. From price adjustments and new campaigns to incoming and outgoing competitors and their successes/failures, everyone wants to know the trends and changes in the market. Houses need – more than ever – to analyze the impact of each new initiative, track emerging products, and optimize product variety and placement.
Indicative retail data table for the luxury bags and footwear category.
There are now countless websites and applications that can analyze Sales/POS data, which we will discuss briefly soon. Their main purpose is essentially for luxury retailers to discover opportunities to increase their sales and respond more quickly to market changes.
For example, with data from a platform called EDITED, a general increase in prices for sleepwear products was observed, while the activewear category featured more affordable prices. This indicates that companies are using retail data to align their business decisions with changing customer demands, as the loungewear and athleisure sectors of the fashion industry continue to define the primary source of revenue in the COVID era.
An indicative table of retail data for the loungewear category.
Considering the above findings, retail data and point-of-sale (POS) data prove to be valuable in developing flexible and competitive pricing strategies for luxury items. The decision regarding pricing strategy can be a challenging process with seemingly endless variables at play. Furthermore, now that e-commerce is at the forefront of retail luxury commerce, consumers have access to thousands of retail stores and can easily compare prices. With automated retail analysis, retailers can extract the right price points based on significant factors such as product trends and competitor activity, more effectively influencing consumer reactions and decisions regarding their products.
U.S. luxury shoppers: Whether their spending on luxury products has changed since the coronavirus outbreak. Base: U.S. luxury shoppers ages 18+. Source: Coresight Research
Weak adaptation determines the losers.
As we are only at the beginning of 2021 and lockdowns continue to strain economic conditions globally, luxury retailers must rise to the challenge and make the necessary moves to ensure survival and success. E-commerce, digital technologies, re-engagement of local customers, and particularly retail data are crucial for the present and future of the luxury industry. Major competitors in the fashion space are responding to the pandemic with their own unique and innovative ways, which means that traditional marketing strategies are not always applicable anymore.
which sites are selling (after lockdown)
Assuming all options are available to you, how much do you think you will spend in the following channels after Covid-19 compared to before ?
It is unquestionably essential to fundamentally collect all valuable market data in order to unlock all statistics with precise analysis that will yield positive results, such as identifying gaps and making the right decisions.
Therefore, if e-commerce and online data analytics are not given the necessary attention and investment they deserve, retailers risk being sidelined, and ultimately, the inability to compete in today’s dynamic industry could prove fatal for countless luxury businesses.
Leave a Reply