The coronavirus pandemic is transforming how we live and work in ways we could hardly have imagined at the beginning of 2020.
As a new reality settles in, for many of us that also means having to adapt to a new lifestyle.
The current health crisis is serious and saddening. Families and businesses across the world are dramatically impacted. In parallel, the underlying economic crisis that is already underway, will take months to resolve too. Many people lost their job (and therefore spending power) across Europe and the United States in the last few weeks. Businesses, big and small, are at risk of shutting down.
The financial system is, once again, crumbling.
To survive, brands will need to adapt. Fast.
In this article, the editorial team at Luxe Digital will attempt to predict the impacts of the novel Coronavirus on the global luxury industry and share a strategic view on what to focus on to adapt and remain relevant during and after the crisis.
Our forecasting method is imperfect. No one knows at this point how exactly the pandemic will evolve nor how rapidly economies will be able to bounce back. We think, however, that it is an important exercise to gain a sense of scale and plan for the future.
Like all crises before it, this global pandemic will pass. It is crucial for businesses to adapt now for an economic downturn and plan for the growth that will eventually return.
The state of luxury today
We like to look at real-time digital data to understand the health of the luxury industry at any given time. Companies’ financial reports and other official data tend to represent the situation as it was yesterday and are thus out of date by the time they are published. Real-time consumer behaviour online, however, gives us a more accurate picture of the present situation.
For the luxury industry as a whole, the current picture is bleak.
Online search interest is at its lowest point since 2017 (a change in Google’s data collection in 2016 makes earlier comparison inaccurate).
This online trend is reflected in the stock market, with the S&P Global Luxury Index also hitting a three-year bottom. The S&P Global Luxury Index is made of the 80 largest publicly-traded luxury companies in the world, such as LVMH, Kering, Richemont, Daimler, and many more. The index is thus a good indicator of the market sentiments for the industry.
You have to look back to summer 2016 to find the same level of valuation for global luxury stocks.
The crisis isn’t affecting every industry within luxury equally, of course. Travel and hospitality are hitting rock bottom: Travel restrictions affect the airlines, luxury and premium travel and tourism, travel retail, global events, and the entertainment and sports industries most. Food and beverage (except for online deliveries) are sharply dropping too. Luxury retail, driven by online sales, isn’t suffering as much as other segments, however.
But when looking at the top 15 most popular luxury brands in the world, it is clear that everyone is affected. Our editors just finished updating the ranking of the best luxury brands for 2020, and virtually every company on our list is seeing a sharp decline in the past few weeks.
Bain & Company predicts that the luxury industry market could drop between 15% and 35% in 2020.
One thing is certain: a profound economic crisis is already underway. It’s impossible to predict accurately how long-lasting or severe it will be, but we can reasonably expect that it will take at least a year for the global economy to stabilise.
What should you do now?
Brands and consumers across the globe are wondering how to adapt to this new reality. Your actions today might leave a long lasting impression on your community.
The epidemic underscores the need for luxury brands, and any business for that matter, to be adaptive and resilient.
People priority: humanity and empathy
First and foremost, you need to care for your close ones, your employees, partners, customers and communities. Right now, people need to be reassured and protected. Start by explaining the measures that your business is taking to ensure everyone’s safety and security.
Some luxury brands have started taking actions to support the fight against COVID-19.
Hermès Group announced in March 2020 that it will maintain the basic salary of its 15,500 employees worldwide.
Gucci launched #GucciCommunity to alleviate this 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.
Dolce & Gabbana funded Italy’s top university scientists, Giorgio Armani donated €1.25 million to hospitals in Milan and Rome, Bulgari helped purchase a state-of-the-art microscope for the Lazzaro Spallanzani hospital in Rome, and LVMH converted some of its perfume factories to manufacture hand sanitisers.
At the bare minimum, show that you’re here. A familiar brand presence is reassuring in times of crisis, it shows continuity. Just comfort your community and show warmth. Consumers might not be buying today, but they will remember you if you offer meaningful support.
In any crisis, there are winners and losers. That seems to be one of the harsh lessons of history. History shows that those who operate out of fear, or neglect, usually disempower themselves and their teams into failure.
Milton Pedraza, The Luxury Institute CEO
Agility for relevancy: rethink, reinvent and self-disrupt
After you take care of the immediate and urgent needs, as a business leader, you should take a step back to assess where your business stands today. Begin brainstorming and researching solutions to achieve a level of continuity through fast changing, uncertain times. Think innovatively about the needs that your communities (both internal and external) will have – in the transition and post-pandemic.
Amid social distancing, it is important for luxury brands to foster a sense of community. Engage your customers with valuable content, virtual social gatherings and crowdsourced online initiatives. If your business structure allows it, now is the time to recalibrate smartly to answer your customers’ changing needs.
The power of adaptability
Soeder*, a soap company in Vienna that creates and sells sustainable beauty products, completely reorganised its manufacturing process to rapidly produce a natural hand sanitiser. The company was able to turn around within a very short time to answer the demand of its customers while staying true to its values.
The current crisis is accelerating underlying trends we’ve observed for several years. One of them, most dear to us, is the digital transformation of luxury. With more people shopping online and more professionals working from home, the entire industry is now forced to embrace digital. Early adopters are best positioned to handle the change, but it’s not too late for the rest to adapt and leverage digital technology. Ultimately, this strategic digital move could pave the way for more innovation, hyper-personalised service, and engaging shopping experiences for consumers online.
In parallel, start thinking about the future. This crisis will pass. It will leave long-lasting memories and forever change consumer behaviours. How can you position your business to be relevant when it’s over?
Luxury of tomorrow
How will the current situation transform luxury? Being mostly an emotionally-driven industry, luxury tends to be one of the fastest to bounce back when a financial crisis subsides. Consumers want to treat themselves with luxury goods and services to celebrate positive life changes.
More fundamentally, we wonder how much the forced quarantine in many countries and states will change people’s perception of buying online and working from home. Online retail has been the growth driver of global luxury sales for several years now, and we expected it to reach 20% of all luxury sales by 2025. This trend might soon accelerate.
With Millennials and Gen Z being the largest and fastest-growing consumer segments for luxury, this presents an immense opportunity for luxury brands to connect and engage with their customers.
Earlier this year, we identified 13 critical trends for luxury brands to stay ahead in 2020. We think the current crisis accelerated the speed at which luxury brands need to adapt to remain relevant.
In particular, the digital transformation of luxury is essential today, when workforces and consumers alike are in confinement.
Purposeful preferences
A positive effect of the current crisis is also the sharp improvement in air quality in the countries most affected by the coronavirus. As Millennial-minded consumers deeply care about sustainable values, might this have other repercussions on how customers decide to spend their money in the future? People are undoubtedly more conscious of environmental, sustainability and social issues. This trend will further consolidate the importance of responsible governance now and after the pandemic. Enlightened brands will rethink their end-to-end product life cycle and customer journey.
Now more than ever, companies need to strengthen their brand perceptions. Beyond aesthetics, affluent consumers will seek ethics from luxury brands. Brands should therefore redefine their purpose to reflect modern societal shifts. It’s a chance for luxury businesses to pause and ponder about the very essence of their brands to deliver a timeless and timely form of meaningful value. This unprecedented time is a catalyst to future-proof the industry by successfully transitioning in response to changing notions of luxury and new consumers’ expectations, sooner rather than later.
We coined the term existential luxury to refer to the need for brands to be truly authentic and deeply rooted in craftsmanship and experience. Consumers are ready to pay more for a product or an experience that adds real value to their life. Brands that genuinely care for their workforce and fairly price their offering will win over the Millennial-minded affluent consumers.
This crisis may be transforming the luxury industry for good, but it could also be a transformation for the good.
Bain & Company
As a brand, every step you take, good or bad, will craft your brand narratives. Now, the question is: what kind of stories do you want to be written?
Meaningful matters. Now more than ever.
We will publish more content on the topic in the coming weeks as our editorial team analyses the impact of the crisis on the luxury industry. Sign up to our newsletter to receive the latest updates.
The bright side of life
While it is critical to keep you informed during this unexpected and devastating crisis, we also know it is important to keep you inspired, entertained and stimulated in these trying times. Our lifestyle editorial team is hard at work producing helpful and refreshing content. We just published a curated list of the best online shopping websites for women and men too, an expertly written selection of the best whiskies and gins of 2020, recommendations to shop for luxury mattresses online, a men’s guide to dress comfortably when working from home, the best women activewear to explore the great indoors and, crucially, a minimalist guide to set up a productive home office.
