Where Does Luxury Go From Here?

The luxury industry continues to suffer from the COVID-19 induced global economic crisis. The Boston Consulting Group (BCG) has predicted that global luxury sales will contract by 25-45% in 2020 after contracting 25% in the first quarter of 2020 alone according to Bain. Lasting effects from the slump will impact countries differently. While China’s recovery is set to increase its luxury sales by the end of 2020, the industry in the United States and Europe is expected to suffer for a longer period.

While luxury’s performance as a whole will vary by country, types of goods within the sector are also expected to behave differently. Consumers have become more conscientious about their spending habits and have therefore reduced the number of luxury goods they are purchasing. According to Bain, “sales of handbags, suits, dresses, and sunglasses have declined, by about 50% in some markets.” Watches and jewelry, too, will have a harder time says BCG, because they usually rely on in-person sales, wholesale purchasing, and international travel. E-commerce for these products is less popular, accounting for only 10% of watch sales and 5% of jewelry and eyewear sales. BCG also predicts that ready-to-wear brands will suffer when they will be forced to sell off excess inventory at deep discounts. The firm expects these sales will “drop by 35% to 50% this year and not reach pre-crisis levels until at least 2023.”

Contrastingly, the Boston Consulting Group predicts that goods less dependent on seasonality or holidays have the best shot at rebounding. Skincare, makeup, footwear, and leather goods are all expected to decline in 2020 but recover faster than others in the sector.

Longer-term, the fate of these products may shift depending on the way they are consumed. “Iconic luxury” — i.e. watches, handbags, jewelry, and other accessories — holds its value over the years. Because of this, the brands can postpone sales of their current products and revive that collection later on once the economic downturn has passed. However, BCG notes that “fashionable luxury,” which is characterized by “seasonality, trendsetter items, and catwalk presentations, will be in a slightly less advantageous spot because their product lines can age badly over time.” These brands can either keep their current collections in stores at full price, mix them in with next season’s items, or sell them at discounted prices in the coming seasons, all of which will maintain their brand value.  

More broadly though, the very nature of luxury is beginning to shift. Consumer priorities are changing and brands are being forced to adapt quickly or be pushed into obsolescence by the pandemic. Brands that are agile and can quickly change their operations to meet new consumer needs will be able to weather the pandemic better than others who stick to traditional concepts of luxury consumption. 

Sustainability is among one of the most important shifts in consumer attitudes in the luxury industry. Addressing consumer concerns by making their brand more environmentally friendly means that brands must rethink their entire supply chain. Which materials they get and where they get them from is having a growing impact on a brand’s ability to say they are working to be more ‘green’ and are reducing their carbon footprint. Being more sustainable will also help brands be more resilient in the face of unprecedented crises like the novel coronavirus. Additionally, as climate change and the efforts to stop it become more mainstream, reshuffling supply chains will help brands abide by stricter future environmental regulations.

Another trend is the increasingly differing styles between the West and China. BCG conducted a consumer survey that found that more than half of respondents expect their “preference to increase for luxury items that are understated and everlasting.” This stems from the pandemic-induced recession which made flaunting wealth feel taboo. On the other hand, Chinese consumers were found to prefer luxury items that had over the top “embellishments, logos, and other visible adornments.” This divide could change the value of luxury brands between the East and the West for the next decade and beyond. 

Another increasingly popular luxury trend is that of “experiential luxury” which is about an experience rather than an item. These experiences can include high-end hotels and resorts, cruises, or restaurants and were becoming increasingly dynamic before the start of the pandemic. This trend is increasingly popular among millennials (people born roughly between the years of 1980-95) who refer to these experiences as “Instagrammable moments.” Shopping for experiences will be put on pause in the short term due to COVID but is expected to continue to see a rise in popularity.

Arguably the most important trend that will shape the future of luxury is the switch to e-commerce during the pandemic. Many luxury brands were hesitant to shift their sales online because they worried it would affect the high-end shopping experience that much of luxury buying is associated with. But those worries changed when the virus forced people out of in-person stores and online for safety reasons. Comparing the success of particular items is helpful in highlighting the importance of online sales to luxury. All items have seen declines in sales but accessories, which were already increasingly being purchased online, were found to be the most resilient, while watches, which had few online sales, saw their sales decline the most when in-person shopping stopped. 

Smart brands are accelerating their shift to online shopping. By centering their online presence around the high-end shopping experience that consumers are used to, brands can maintain the expectations customers have for them. These shopping experiences should set the luxury brand apart from other retailers in the same way they did previously. Offering “related activities such as fashion shows, private showings, personal shoppers, white-glove delivery, and other customized services,” BCG notes, could help luxury maintain its historic distinctness despite the pandemic.