Every year brings a long list of challenges and new trends in the business world, forcing companies to adapt quickly to new situations. However this year, perhaps more than any other year before, people and businesses are staring at the future, hoping to gain insights into what would be the the “new normal”.
The Covid-19 pandemic is transforming how we live and work in ways we could hardly imagine at the beginning of the year. Families and businesses across the world are feeling the impact dramatically. Simultaneously, the economic crisis that is already underway will take months, or even years, to be resolved. The health crisis has forced many people to find new ways of working, learning or shopping, and many businesses are at risk of shutting down.
The luxury industry was one of the first to be influenced by this global crisis. This article will try to show the impact of coronavirus on the industry and share a strategic view on what luxury companies need to focus on to recover as quickly as possible when the crisis abates.
The global pandemic affects everyone in the luxury industry, but it is not affecting every field equally. Travel and hospitality are the most affected. Food and beverage (except for online deliveries) are sharply dropping as well. However, luxury retail, driven by online sales, has not suffered as much as other segments. Bain & Company predicts that the luxury industry market could drop between 15% and 35% in 2020.
Companies need to adapt to the new situation quickly to survive. In the face of the global health pandemic, many large luxury companies offer help, by providing public health needs such as contributions to hospitals and non-profit organisations, and producing face masks and hand sanitisers. For instance, Gucci launched the #GucciCommunity to alleviate the crisis by “helping health services with equipment and powering the scientists who are working on vaccines and treatments”, and making two separate donations of 1 million euros each to crowdfunding campaigns.
Ultimately, brands need to remain visible by providing any form of support during a crisis, which creates a warm bond with the community. Enhancing this familiar feeling ensures that consumers, who may not be buying today, remember the brand when the crisis is over.
In parallel, the current health crisis reinforces luxury brands’ need to employ digital strategies in their business models. With more people buying online and more professionals working from home, luxury brands need to adapt accordingly. While Millenials and Generation Z are the largest consumer segments for luxury, the digitalisation of luxury is now more relevant than ever. Ultimately, this strategic digital move would pave the way for more innovation, hyper-personalised services, and engaging shopping experiences for consumers online. This crisis will pass but will leave long-lasting habits and different consumer behaviours, which luxury companies need to understand and adapt to quickly, to strengthen their position.
Finally, millennials-minded consumers care deeply about sustainable values and are more conscious of environmental and social issues. This trend should lead luxury companies to rethink their end-to-end product life cycle and customer journey, to become more sustainable, environmentally friendly and ethical. The luxury industry has embraced sustainable practices more in the past couple of decades, however, now more than ever luxury brands need to become even more trustworthy, by being more transparent with their processes and products.
Luxury is often one of the first industries affected in times of crisis, but it also comes back more strongly when the crisis is over, as long as the industry continue to evolve and adapt to the changing landscape.
- Fast-forward China: How COVID-19 is accelerating five key trends shaping the Chinese economy, By Nick Leung, Joe Ngai, Jeongmin Seong, and Jonathan Woetzel, McKinsey, May 2020.
- Farfetch, Alibaba Group and Richemont Form Global Partnership to Accelerate the Digitization of the Luxury Industry, Farfetch, November 2020.
- The Armani Group and YOOX NET-A-PORTER GROUP come together to design distribution model for the future, YNAP, July 2020.
- Amazon Announces New Shopping Experience, Luxury Stores, Amazon, September 2020.
- The RealReal and Gucci Launch Circular Economy Partnership, The RealReal, October 2020.