When crisis strikes, surely the first sectors of the economy to suffer are non-essentials, such as luxury goods. But how badly has the luxury goods market been affected, and how quickly will it rebound?
IRC Global Executive Search Partners brought together a number of experts in the field for a Global Virtual Roundtable entitled Post-pandemic trends in the Luxury Goods sector to discuss how deeply the pandemic has affected sales and what the future could hold.
More resilient than you think
Our first speaker, a retail advisory firm director, pointed out that the luxury market was actually more resilient than people might realise. We've seen in different parts of the world – especially in the Middle East and Asia - luxury brands returning with very good sales, and there are also signs of the same happening in the North American market, although it is too soon to tell how permanent the return will be. However, it seems that discretionary spending has not been affected dramatically with Covid; people who haven't been able to consume luxury goods for maybe three or four months are willing to spend and to go to the stores.
One of the major changes, at least from the retail point of view, is the fact that luxury brands have not gone online or started to use e-commerce as much as most other retail goods, and many luxury brands are just starting their e-commerce platforms. Many European luxury brands have neglected that channel for years.
Another factor is the disruption of the fashion calendar. Fashion weeks and other events are obviously on hold, but some brands are organising their own virtual events to compensate.
Luxury – a whole shopping experience ill-suited to online sales
One CEO of a jewellery manufacturer said the rise of online had been quite delayed in the luxury industry, and as a result, online sales were accounting for much higher revenues than before. However, our speaker said she was not sure that everyone was migrating online. Sales of luxury goods were about the whole experience, the storytelling and the relationship with one's sales consultant or sales advisor. How do you transfer that online?
Another challenge was sustainability, she said. The luxury industry has so far been above sustainability. Now, many in the sector are questioning that because of the impact on the financials and the need to become more sustainable.
Digitalization and online sales – the price tag is key
But what about the evolution of digitalization in the Luxury Goods market? One CEO pointed at the developments in companies like Victoria's Secret and others, who were connecting with their customers via digital platforms for that personal customer experience. However, this remained a challenge for the high end of the market - when you're paying $10,000 or $50,000 for something, he said, the shopper wants to take the time to go and see the product, to touch it and feel it.
Where online shopping could work, he said, was at the lower end, where people are paying $5 or $10 for a piece of cheaper jewellery. And it also depends on the category and country. For example, the highest digitalization in the world is happening in Sweden and the Netherlands, although it's accelerating elsewhere in places like Egypt and the Middle East.
The WhatsApp factor
Another speaker chose the example of a large luxury goods company, whose Mexico subsidiary – pre-Covid - was seeing 50% of their sales coming through WhatsApp; a highly personal relationship where the sales agents or the salespeople on the floor had personal ties with their customers. They go to their social events, they are friends and every time that a new merchandise comes into the store, they know their customer, they know their size and they even have their credit card number. They then send pictures to the customer and then the customer picks the specific products or merchandise via WhatsApp. It's then shipped to the customer's home to try on. So the store in Mexico City is empty, but sales are booming. Perhaps the same approach will be emulated elsewhere.
Chinese 'revenge spending' and new skillsets
In China, where the pandemic began, luxury goods are now flying off the shelves. Mega tier luxury brands - the Chanels and Cartiers of the world – are in high demand, so much so that prices are increasing domestically in China because they cannot keep up with the demand. One speaker called this trend "revenge spending" to make up for the time lost in the pandemic.
A second important change was the fact that Chinese people were now buying more online and at home in China, since those luxury shopping trips to Greece or France were no longer possible. Luxury brands like Burberry now have their own online stores in Chinese apps such as WeChat.
So in future, what is needed will be relationship skills - being able to develop and cultivate long-term relationships not necessarily in the store, but online too, especially with millennials. Reserve and collect platforms on mobile phones would be increasingly vital, our Hong Kong speaker said.
Little room for recycling in luxury sector
Another speaker, in Scandinavia this time, said she believed more and more people were determined to cut down on waste and reuse, repair and recycle goods, which was one reason why luxury goods had a hard time breaking through in the Nordic countries.
Travel bans, lockdowns and remote working
Internally, the restriction on international travel has hampered work in luxury retail. A lot has been accomplished remotely, but speakers were truly looking forward to be able to travel to visit prospects together with clients. When it comes to the investment of billions of dollars, building that type of business relationship and partnership is impossible remotely.
The younger generation, however, seemed more comfortable with working from home and appreciated having more freedom and flexibility in their work-life balance. The world is getting smaller, and flatter. Covid has accelerated that transition from a regular employee arriving at an office building in a suit and tie, which was typical 20 to 30 years ago but is fast being replaced. In 30 years' time, it could be ancient history as people become more comfortable working from home. And technology such as Zoom etc. is making that possible.
So working from home is going to be something that global companies will need to embrace. Google has already done it. One speaker pointed out that Google had given each employee $1,000 to buy furniture to allow them to work from home. So they're encouraging it, and then you can start paying out less money and employ consultants instead. There are even portals right now where you can hire people to do certain specific jobs via a digital platform. One CEO said his company was embracing that change rather than resisting it.
Not just the paycheck
Our Scandinavian speaker pointed out that many Nordic millennials wanted not just a paycheck, but a sense of purpose from the company. The company culture and the possibilities of self-growth were vital, she said. Another very important aspect in Scandinavia was self-management. Younger employees don't like having bosses, somebody who just looks over their shoulder and gives them orders. Rather a system of coaching and mentoring to develop strengths was more valued. As for working from home, well it can backfire if it is not addressed in the right way, especially if the separation between home life and work life is not respected.
Egyptian sustainability out of necessity
Other countries, the panel heard, were sustainable out of necessity rather than ideology. Egypt, for example, is a very poor country which has never had the luxury of waste. It's sustainable by nature, out of need and necessity. The problem of over-consumption of luxury brands did not actually exist there, which was certainly an advantage.
However, today's millennials – whether in Egypt or Estonia – were increasingly connected. They speak the same language, and are all demanding the same from the brand, wherever they are.
Getting the customer back through the door
Speakers told the panel that most luxury brands retailers were implementing all the safety measures, and in fact, the threats to the industry were not necessarily all related to Covid. Other global threats were just as damaging, such as the trade war and the tariffs - especially those put in place by the US government on goods from the European Union and China.
Policy changes in some International markets – VAT in Saudi Arabia, lowering taxes for luxury goods in China that makes it less interesting for Chinese consumers to go to Europe and buy from luxury retailers there. As well as the historical reliance on tourists, which has taken a heavy hit and won't recover until the global tourism industry recovers. So the next five years could be a challenging time for the luxury brand sector – especially those that rely heavily on tourism. But once all these challenges are overcome, the industry will, of course, bounce back.
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Earlier in 2021, IRC Global Executive Search Partners hosted two virtual roundtable discussions with preeminent members of the global business community representing healthcare, logistics, consulting and education sectors to explore the driving forces behind digital transformation, its applications and the challenges to sustaining the momentum of digitalization. The virtual roundtable discussions yielded rich anecdotal accounts that provided perspective to a survey IRC had commissioned 18 months