Future of Luxury

Four major impacts which will reshape the luxury sector in the post-pandemic world.

Kering reported interim revenue decrease of 29% to 5.4 billion and profit dip by 58%. Even Gucci, their largest brand, sales fell by 45%. Operating profits of LVMH sank 68% to €1.67 billion.

The first half of 2020 has been severely hit by the after-effects of COVID-19 and the subsequent disruptions. Luxury conglomerates are having a tough time even with some positive news from the Chinese market. Sales at LVMH fashion & leather division in China grew more than 65% in the second quarter while Kering reported an overall growth in China of 40%. The Chinese consumers are unable to travel which has benefitted the local market. But this is not sufficient to compensate for the global decline in sales for the sector.

Even before the pandemic struck, several luxury brands were already struggling— because of lack of moving to vertical integration and/or not catching up with the growth of e-commerce.

So, what looks like the future of this high value sector?

At this stage, I believe it is a fairly acceptable to say that this is the "New Normal" (read more) and we have to "learn to live with the virus". This situation is far from over and will clearly lead to consumer behaviour shifts. Prior to the pandemic, Asia was turning out to be the epicenter of growth of the luxury sector. Chinese consumers had been dominating luxury purchases whether domestic or abroad. Based on a study by GlobalWebIndex, the global average stands at 25% for consumers who have delayed luxury purchases and at 6% for consumers who will prioritize luxury purchases once the pandemic is over. Out of 17 countries covered across the globe, it was just India, China and South Africa who stood above the global average in the survey.

1. Disrupted Supply Chain

The biggest impact is the disruption to the supply chain. In this globalized world, the raw material coming from one part of the world and getting assembled in another was quite the norm. More than 40 percent of global luxury-goods production happens in Italy and sold world over. All the Italian factories, including small, family-based façonniers, a French term loosely translating to “contract manufacturers”, have been temporarily shut down. Luxury relies on heritage and expertise of craftsmanship passed on from generations. The result of this excellence is irreplaceable. The pandemic has been a huge disruption to the supply chain. Brands need to risk-proof their manufacturing capabilities by developing multiple manufacturing hubs - just like multiple retail hubs are exist today. Solutions ranging from remote-working platforms to virtual showrooms will assist the process. Digitizing the supply chain from end to end will, of course, require investment in innovative, leading-edge technologies.

2. Rise of the Local Shopper

As global travel remains disrupted, there will be the rise of the "local shopper". 20 to 30 percent of industry revenues were generated by consumers making luxury purchases outside their home countries. In 2018, Chinese consumers took more than 150 million trips abroad. Brands will need a new approach to attract luxury shoppers in their home countries and engage more deeply with consumers in tier-two and -three cities to grow the market. Creating tailored local experiences and strengthening omnichannel offerings would become essential. Challenges will lie with retail infrastructure and customer service capabilities. Digital experiences will be easier to replicate across geographies.

3. Fashion Weeks redefined

Fashion weeks are the ultimate extravaganza of art created by luxury brands. Trade relationships thrive during the fashion weeks and trade shows. Some of it is returning to normal but there have been some fundamental shifts. Influential brands like Gucci, Michael Kors, Alexander Wang, Dries Van Noten among others have opted for seasonless calendars or reduced their number of shows taking ownerships of their calendars. This is a huge trend towards meaningful luxury and slow fashion. Many luxury brands have been wanting this change but the pandemic gave a push to the transformation. Additionally, shows need to have a digital aspect as well for the attendees who cannot travel. The recent haute couture Fall-Winter 20 by Valentino was a splendid mix of digital storytelling with extravagant surrealism. This is created the futuristic mix in the visuals of luxury and will have long-term impact on the trends.

4. New confidence in digital capabilities

We kept talking about the importance of digitalization and what not about it. But it seems, it will be the "humble" coronavirus which will go in the history as the biggest catalyst for the digital leap! During the pandemic, companies which were agile, have seen good growth through their e-commerce business. This has created confidence in the leadership towards Digital Innovation. In China, e-commerce has attracted new customer segments and markets; similar patterns are expected in other geographies. The fact that digital capabilities reap financial benefits has been established now. For brands, the next step is to get deeper into the transformational journey to make meaningful innovation. In this article (read here), we had discussed top priorities business leaders have from their transformational exercise. Stepping up the client experiences and digital storytelling will become the differentiating language for luxury.

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In the hyper-globalized world, this crisis has highlighted gaps which need immediate attention. Digital Transformation has surely seen a positive impact with the pandemic. May be this pandemic will usher a new era era of slow luxury and circular economy - the changes which we had wanted but were unable to make! While the period is undoubtedly challenging, but with careful planning and execution, we can emerge stronger.

“The Chinese use two brush strokes to write the word 'crisis.' One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger--but recognize the opportunity.”

John F. Kennedy

Author: Pranjali Apurva, Chief Innovation Druid, BLVCK PiXEL

BLVCK PiXEL is a Digital Innovation Consultancy headquartered in Paris. We aim to bridge the gap between Technology & Business through Design-led Strategy. Connect with us.