Luxury before & after Covid-19: What has changed?

The aim of this article is to focus on the new changes and trends that sprung from the effects of the Coronavirus on the luxury market.

First of all, the study wants to analyze the asset before the Covid-19, when markets had positive trends and they were looking at the emergent Asian new class of young consumers:  generation Z.

The article will then study the effects on luxury markets after the Covid-19, focusing on the important relationship between tourism and luxury.


Before the pandemic: luxury goods markets

Before the pandemic, there were big hopes that consumers were finally warming to the idea of luxury resale. More in detail, we refer to the Chinese young consumers, who, after cultural taboos regarding secondhand clothes abated, were the first target for luxury markets.

China was indeed the country whose citizens accounted for 90% of the global luxury market growth in 2019.

The global luxury goods market was expected to increase from US$314.4 billion in 2018 to US$341.8 billion in 2022, at CAGR of 2.1%. Asia was expected to witness the highest spending riding on the back of China’s resurgence, followed by Europe, North America, South America, Africa and the Middle East.

Moreover, online sales of luxury goods were expected to cannibalize the brick-and-mortar share. Globally, Luis Vuitton had the largest share (12.1%), followed by Estée Lauder (6.7%), L’Oréal (5.3%), Kering (5.0%) and Richemont (4.9%) [1]. Even though the luxury fashion market was still driven by high-end brands such as Gucci, Versace, Chanel, and Christian Dior, premium brands such as Diesel, Guess, Tommy Hilfiger, and Calvin Klein were beginning to break up their market share and were expected to be the new engines of market growth.

The US was the largest market in the luxury fashion category, with expected cumulative sales of US$ 127.7 billion during 2018-2022, followed by Japan, the UK, France, and China. The highest growth rate was expected by the South Korean luxury fashion market.

Another important trend in this market segment was the rapid emergence of accessories and shoes as the new driving force, replacing ready-to-wear clothes, the previously dominant category.

According to a report by investment research and management company Bernstein, which tracked 7.000 stores for 36 luxury brands across the world, the number of new store openings for the one year starting July 2016, was in the negative. But even though there was an existing positive trend of luxury eCommerce sales, it does not quite spell the end of physical luxury retail. The 87% of affluent consumers in Japan and western Europe preferred in-store purchase of luxury goods because they wanted to see or touch the product (65%) or were afraid of buying counterfeit goods (22%)[2].

Store closures were either the result of some brands increasing ecommerce presence in favorable markets such as China or simply changing their brick-and-mortar strategies to cater to evolving preferences for modern luxury customers.

There were others who were readjusting their channel strategies because they were over-stored in the past and were thus switching from many small stores to fewer larger stores in prime areas. This enabled them to showcase their full product range, thereby allowing consumers to enjoy fully immersive shopping experience.


Before the pandemic: Jewelry trend 

In 2019, consumers in key markets showed the greatest interest and affinity for high jewelry brands that are ethical and eco-friendly. A majority of consumers surveyed express their willingness to spend more or the same on precious jewelry than pre-COVID-19 after things return to normal, and strong brands that tell a compelling story will lead the way to recovery.

Much research shows that, for some customers, there is an important shift towards searching and shopping in a more conscious way. This certainly means that shoppers are looking for smart and sustainable products that were sourced carefully, manufactured with recycled precious materials, and sold for a greater purpose.

Jewelry leaders need to rethink the way they purchase their precious goods, trying to reduce the waste and carbon footprint. Companies can save energy in jewelry production and cut the cycle into redesigning the lives of jewelry instead of creating a sustainable jewelry line.

It is finally time for new innovative solutions that fight corrupted and opaque gemstone businesses. Artificial intelligence was the most voted tech that we should develop further in the future years.


The first quarter of 2020

The luxury market is expected to decline by 25% to 30% in the first quarter of 2020.

The luxury market in Europe was stable in the first two-and-a-half months of the year, although with substantial variations between countries. The Italian market suffered worst, as quarantines caused double-digit sales declines across the country. Sales rose overall in France, Spain, Germany and the UK, thanks to tourism (especially from Russia and the Middle East) and stable local demand during the early stages of the outbreak.

The luxury market in the Americas is also starting to feel the full impact of coronavirus disruption. A decline in (predominantly Chinese) tourist spending did not appear to have had much of an impact in the first two-and-a-half months of the year. But the positive trend we saw for the greater part of the quarter is already coming under intense pressure as most players shut their American stores.


Luxury and Tourism 

Current scenarios point to declines of 58% to 78% in international tourist arrivals for the year, depending on the speed of the containment and the duration of travel restrictions and shutdown of borders, although the outlook remains highly uncertain.

Available data points to a double-digit decrease of 22% in international tourist arrivals in Q1 2020, with arrivals in the month of March down by 57% following the start of the lockdown in many countries, widespread travel restrictions, and the shutdown of airports and national borders.

This represents a loss of 67 million international arrivals in the first quarter of 2020 compared to the same period of last year. By regions, Asia and the Pacific, the first region to suffer the impact of COVID-19, saw a 35% decrease in arrivals in Q1 2020.

The second-hardest hit was Europe with a 19% decline, followed by the Americas (-15%), Africa (-12%) and the Middle East (-11%)[3]. 

Segments potentially affected are also high spenders: international, long haul, business travel, and events. There is a risk that people can have a perception of travel as a risk. It can generate low levels of demand when restarting tourism due to social distancing.

Data reports over 2 million Chinese tourists in 2019 (out of 55 million travelers), with an average stay of one week and a generated turnover of over 1 billion.

Today the inventions for local consumption implemented by the Chinese government aim to increase taxes on luxury goods purchased abroad and to decrease VAT in China, to favor local consumption and the domestic market in 2019-2020. Despite the adoption of these measures, mainland China prices remain around 30% higher than European prices.

From a competition point of view, following the successful example of “Luxury Pavillon”, a website dedicated to luxury, the Chinese giant Alibaba also launched the “Luxury Soho” website last April. Alibaba's platform will mainly target Gen Z and young consumers, allowing them to approach luxury brands. The platform offers brands the tools to manage their stores with full control of pricing, product selection, and strategy, involving consumers through cutting-edge features, from live streaming, from augmented reality, from interactive 3D technologies to virtual icons, up to flexible payment solutions.


Which is the future of Luxury? Value proposition and business model

Even before the pandemic, the luxury industry was undergoing fundamental change.

Companies faced mounting pressure to become more customer-oriented, digital, agile and sustainable. To stay relevant, luxury brands will indeed need to create deeper and more meaningful engagement with their modern affluent consumers, deliver a new range of personalized experiences and innovate both their business models and value propositions to fit modern digital-infused lifestyles. In short: empower individual identities and expressions.

Luxury will be distilled to its very essence—raw, sensible, deeply rooted in craftsmanship and fueled by innovation.

If 2020 brings with it a lot of uncertainty and challenges, for forward-looking luxury brands with the right mindset the coming year brings boundless opportunities. 


[1] Source: statista 2019

[2] Google-Ipsos survey

[3] UNWTO World Tourism Barometer May 2020


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