The recent Corona Virus has perhaps been the biggest disaster that the world and the luxury industry have ever faced. Nothing of this magnitude ever was imagined or experienced even post the world wars, the famines or the financial mayhems of 2008. However, with every such past crisis, history has been witness to human resilience, his ability to adjust and create a new normal. Life goes on – time and tide wait for none as they say.
With every crisis, there comes new opportunity. Time and again, this has been proven true. Despite the telephone having been invented in late 1800s, it became a new normal immediately and only after the First World War. Likewise, in 2003, post SARS, Taoboa emerged from Alibaba and became a new phenomenon. In India, the Demonetization of 2016 led to digital money and its leader PayTm becoming the new normal. 9/11 changed travel security and 26/11 changed hotel security for ever. The Covid crisis is already making work from home, digital banking, e-commerce and social distancing as the new normal.
How about Luxury?
In 2019, the global luxury industry was estimated to be worth 281 billion euro at 4.1 percent CAGR. Many of the top luxury groups and brands enjoyed double-digit growth for several quarters. And 90 percent of that growth was thanks to Chinese customers alone, reaching 35 percent of the value of luxury goods, according to a 2019 Bain study.
Luxury, since its very origins, meant slow pace, attention to detail, and custom made. Rarity was the reason that justified a high value of the product. Luxury was the story of passionate creators aiming to leave a lasting mark in the history of excellence. More art than commerce was the true essence of luxury.
Soon after corporatisation of luxury, segmentation and targeting became the norm. Luxury positioned itself as an industry that sells items often bought for status or self-pleasure or differentiation or even the feel good factor. However, in a time comparable to a war like scenario, it won’t be a priority for many of those customers who used to stock their wardrobes with pricey items.
Besides, as per a study by Harvard Business Review, during a recession or crisis like it is now, the normal market segmentation does not hold true. It changes into four different categories of:
1. Those who slam on the brakes and conserve every penny they have.
2. Those who are pained but patient to be cautious with their expenditure and wait for good times to return.
3. The comfortably well off affluent customer, for whom recession or economic downturns do not matter.
4. And finally, the YOLO or live for the day generation.
Luxury essentially targets the last two of the above.
So will luxury have a set back?
Yes surely, but will bounce back quickly simply because for someone whom luxury is a way of life, his benchmarks will not change. A hedonist enjoys what he buys. His taste levels do not accept anything lower than what he perceives as acceptable. He was always buying for his own satisfactions and will continue to do so. On the other hand, the aspirant for whom luxury is a treat, a social declaration of his success, his feel good trophy, he will continue to live for the moment. Of course, quantity will be replaced by quality.
So what will post Covid luxury look like?
After the Covid-19 crisis dissipates, we will see brands and companies fall into one of two categories.
There will be those that don’t do anything, hoping such a disruption won’t ever happen again. These companies will be taking a highly risky gamble.
And there will be firms that heed the lessons of this crisis and make investments in mapping their supply networks so that they do not have to operate blind when the next crisis strikes. They will rewrite their contracts, operating procedures and processes so they can quickly figure out solutions when disruptions occur. These companies will be the winners in the long term.
Luxury sales are expected to suffer a year-over-year decline of 25 percent to 30 percent, according to the latest research from Bain & Company.
Aspects that are expected to continue into 2021 and beyond include:
– Decrease in consumer confidence
– Decrease in willingness to spend
– Travel will shift from no travel to cautionary and necessary travel.
The evolution and duration of the pandemic will surely be impacted by the response of individual governments and populations, however Bain & Company predicts that the market is likely to recover in two different schematics for 2021 and forward.
Strategies for the new normal
Some new consumer trends that will emerge from this scenario are:
a. Accelerated shift to Digital shopping: This is likely to super-accelerate because consumers not only have more time on their hands, but also because interacting with e-commerce sites has become a necessity. Omni-channel is the necessitated future.
b. Changes in store operating procedures: Restricted number of clients permitted into the mall and stores; heightened sanitation procedures; staggered and longer operating hours will all be a result of the new social distancing normal. Operating costs will rise, while inefficient stores will face closure. Brands with multiple stores will keep the best performing ones on, while rest will shutter.
c. Shows without live audiences: With travel restrictions and limitations on crowd assembly, digital launch of collections is a new normal. Besides, cost of travel will shoot up, due to reduced number of passengers allowed on board.
d. Heightened environmental & social consciousness: For pioneering brands, investments in sustainability and innovation are of high strategic importance. Quality over quantity will be the new mantra. Sustainability beyond lip service will be warranted.
e. Sharing economy may suffer: Health-related concerns growing out of the pandemic will impact the growth of rental and re-usable luxury. Hygiene and sanitation SOPs will become the deciding criteria for consumer choice.
f. Rise of a post-aspirational mindset: Ethics will become as important as aesthetics as consumers prioritize purposeful brands. Anticipate a visible shift in consumer mindset.
g. Strengthened local pride: Brands need to avoid being insensitive to local cultures. The de-globalisation phenomenon is backed by a rising urge of patriotism.
h. Expanding the need for inclusion: Brands need to include reduced spending powers by ensuring response to mall ticket players. The lip stick effect is most prominent amongst the aspirational class. This time, lipstick is likely to be replaced by eye liners and mascara, given the need to wear a mask in public.
i. Stay relevant to customers: Reassure existing customers through editorial and personal engagement wrt social distancing, hygiene and other such measures they may be taking.
j. Develop a 360 degree customer strategy: Be more customer centric, agile and sustainable. Adopt the HEART framework of sustained communications:
Humanize your company
Educate about change
Assure stability
Revolutionize offerings
Tackle the future
Credits: Research inputs from Bain & Company; Harvard Business Review and study by the author, ‘Corona Virus and its impact on Indian luxury’, available as an extension to The Incredible Indian Luxury Bazaar.
Abhaya Gupta, a certified Marshall Goldsmith coach, is the founder, promoter and CEO of Luxury Connect (a boutique consulting organization) and Luxury Connect Business School (LCBS). He has helped establish luxury brands like Versace, Versace Home, Versace Collection, Corneliani, Arredo Classic, etc in India. Luxury publication Blackbook recognizes him as one of the ‘Top 100 Indian Luxury’s Most Influential’ for the past 6 years. He is also a recipient of the ‘Luxury Retail Icon 2012’ title by Asia Retail Congress. Having being featured in Forbes Luxury Trend Report 2012 as one of the industry leaders, he has also been widely recognized as a luxury expert by many media organisations. Fondazione Altagama has also recognized his contribution to the growth of Italian luxury industry by his pioneering efforts in India.
