In what is proving to be an increasingly difficult climate for businesses no matter the industry, the fashion and luxury markets are being hit particularly hard by the spread of COVID-19, as brands are being forced to “indefinitely” shutter their brick-and-mortar outposts, and consumers are opting to focus more centrally on purchases of essentials while they observe the travel bans and social distancing mandates that are being rolled out in cities across the globe. The impacts of this are sweeping, with investment research and management consultancy Bernstein predicting that the first half of 2020 is “likely going to be the worst in the history of the modern luxury goods industry,” per Quartz, as the novel virus poses a challenge that is “even greater than the 2008 recession.”
With revenue losses estimated to reach $32 to $43 billion in 2020 as a result of the enduring spread of COVID-19, and heightening uncertainty about travel and retail operations more generally that comes along with it, New York-based luxury goods-centric consulting firm, the Luxury Institute, reached out to all members of its Global Luxury Expert Network – the largest global network of luxury executives and experts in the world – to gauge what brands are thinking about and what they are planning for in light of the continued spread of the virus.
Some of the Most Significant Impacts of COVID-19 on Fashion and Luxury Brands
The Luxury Institute‘s Global Luxury Expert Network members, who “operate at the front lines of the global luxury industry,” according to the consultancy, proposed an array of concerns and potential impacts that they suggest will be some of the most significant in connection with COVID-19. These include …
1. The Chinese consumer, which is responsible for some 35 percent of global luxury sales and more than 80 percent of the growth in this segment of the market, has been shaken and economically hit hard by these events. It remains to be seen if they will continue to be the engine of growth for the luxury industry, and/or if their values and purchasing habits will change.
2. Affluent consumers’ fears and uncertainty related to their personal and loved ones’ health will be exacerbated by massive stock market losses that will generate a near-term sense of financial loss. These losses will cause affluent consumers, as well as mass market consumers who buy luxury periodically, to pull back sharply on spending, at least in the medium term.
3. The inability to travel will dramatically affect airlines, luxury and premium travel and tourism, brands’ rising focus on travel retail, global conferences and events, and the entertainment and sports industries most. This will last for several months.
4. Luxury goods supply chains will be affected by Chinese and European dislocations. They will be fixed (as we are already seeing to a large extent in china), but a major loss has already taken place and will reverberate for months. Alternative supply chains will be seriously considered.
5. The impact on the global fashion/luxury workforce will be severe unless governments and brands step up to protect these members of the industry.
6. Digital capabilities and skills are very important right now and will become even more so in the long-term. It remains to be seen if luxury consumers will revive their appetite for in-store experiences at the same levels as pre-crisis, which were somewhat declining in any case. Some experts think that most of whatever can be done online will, in fact, be done online in the future.
7. Many uber-wealthy consumers have escaped the major cities to secondary enclaves and are hunkering down and assessing various elements of their lives. It remains to be seen how they will be affected, but no one is expected to escape the mental and behavioral effects of the transformation.
Changes We Can Expect as a Result of This Pandemic
It is difficult to predict how the crisis will rewire the needs and wants of all luxury consumers and brands, alike, but as in all major crises in history, there will be long-lasting effects in perceptions and behaviors. Members recognize that predicting the future is a futile exercise for the most part. Here are some areas of question that Global Luxury Expert Network members believe will be considered and/or reconsidered by affluent consumers and brands in light of the pandemic …
1. The marketing of sustainability as a brand badge vs. the need to fully address true sustainability. When will the window dressing stop and when will companies get serious about implementation?
2. With all the fake “authenticity” that abounds in luxury and premium offerings, where will consumers turn to for the true authenticity and safety that they crave and need?
3. What will change in terms of the ways that luxury clients choose to engage with brands? Will they now only engage seriously with brands that share and prove their humanistic values?
4. Will luxury brands continue to engage in mass production to grow at all costs, and will there be new true niche luxury brands that emerge as winners?
5. How will Millennials and Gen-Zs emerge from the crisis economically, and what will be their mindsets with regard to luxury? Will these be long-term effects or short-lived?
6. Will the pandemic delay, or accelerate, the global generational wealth transfer?
7. Will clients insist upon transparent supply chains, and truly support locally-sourced products and services?
8. How will luxury travel attitudes and habits change as a result of the pandemic?
9. Will the uber-wealthy and wealthy again more strongly seek to alienate themselves from others such as in private clubs and communities, as was more common in the past?
10. Will luxury brands retreat from third-party retailers and choose to build direct and exclusive client relationships?