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Op-Ed | 6 Predictions for Luxury in a Post-Virus World

When the coronavirus crisis subsides, the luxury sector will eventually bounce back, but the market will have changed, write Jean-Noël Kapferer and Jean Revis.
A store at Wuhan International Plaza Shopping Center preparing to reopen | Source: Getty Images
By
  • Jean-Noël Kapferer,
  • Jean Révis

The world is experiencing one of the most devastating crises since the Second World War. For most people, its impact will be greater than 9/11, SARS and the subprime mortgage crisis put together. During those crises, the travel and hospitality industry endured revenue losses of 25 percent. Today: 90 percent. Air travel passenger traffic is down by over 90 percent and will not be back any time soon, and hotels are as empty as the airports… or luxury stores, which depend heavily on overseas consumers: Chinese travellers alone count for 27 percent of the overall luxury market.

To be sure, 2020 will be an annus horribilis for the luxury industry, with sales predicted to fall by 35 percent as the pandemic disrupts both supply and demand. On the supply side, the two primary manufacturing countries for personal luxury goods — Italy and France — are still locked down. On the demand side, discretionary spending has crashed, and the US, Europe, Japan and South Korea have been doubly hit by the absence of Chinese tourists.

What we are likely to see is the acceleration of existing trends.

Luxury is inherently cyclical: the sector slows down quickly as soon as hints of a crisis begin to surface. Conversely, it starts up again when early signs of a recovery emerge, bringing optimism with them. Will the rebound curve seen after previous crises reappear? Despite signs of "revenge buying" at the Guangzhou Hermès store, we doubt it. Instead, what we are likely to see is the acceleration of existing trends that could nonetheless help the recovery.

The rebound will come from China. The Chinese are inherently optimistic and have faith in their future. As a result, this market will start up first. What's more, the Chinese government has the clear intention of repatriating Chinese luxury consumption, boosting the portion of luxury purchases they make in Mainland China from 25 percent to 50 percent. With travel down sharply, this should be easier to achieve, and most major Chinese luxury retailers seem to be sticking to their yearly sales targets. Even if the wave of early "revenge shopping" doesn't last, the expansion of China's domestic market will help, forcing brands to overhaul their China strategies and move their unsold stock to the Mainland as soon as they can.

2. Fatigue in Mature Markets

For luxury's most mature markets — Europe, Japan and the US — the virus may continue to spread rampantly for some time, dampening consumer appetite for non-essential luxury goods. Pessimism does not lead to indulgence. As long as the level of perceived insecurity or fear is high, the luxury rebound will be slow and accelerate the shift towards more reasonable luxury consumption. In these markets, we can expect a kind of backpedalling towards lower spending for some time. This is not a good forecast for luxury, though brands rooted in minimalism, restraint or classical craftsmanship may fare better.

3. No-Channel Strategies

Just as companies have successfully adapted to remote working as a result of the coronavirus, so, too, might consumers change their channel habits, embracing e-commerce for their shopping. Indeed, if managers no longer need to travel around the world to attend conferences, why should consumers be expected to go back to stores? Or so the logic goes. The situation on the ground isn't quite as clear. In China, luxury e-commerce hasn't boomed, and yet online campaigns have proven more important than ever in priming customers to return to physical stores. More than ever, a no-channel approach will be critical: stores will remain essential, but digital engagement will become more important to the purchasing path and, moreover, the organisational silos between stores, e-commerce, social media and other communications channels will disappear.

4. Direct-to-Consumer, or Die

Rebound predictions vary depending on distribution networks. The brands that rely too heavily on wholesale channels will have to contend with the level of sell-in from before the crisis. This may prevent a rapid recovery and classic re-ignition of desire through novelty. During the last recession, brands that enjoyed the real luxury of managing their own distribution could control their prices and avoid the temptation of rebates. And they also control troves of consumer data to best engage their more-precious-than-ever local customers. Such brands will remain the models of long-term value.

5. Step Up to Sustainability

With mankind on a knife edge, a more ethical approach to luxury seems sure to be part of the rebound. Sustainability and luxury have been flirting for years now. Built into luxury are several values-based stories to tell: manufacturing products that last, saving endangered craftsmanship, fostering gender equality… The brands that have developed a clear sustainability strategy will be better placed to win with consumers when the crisis subsides. The next step will be to find the right way to share these strategies with clients, as sustainability still hasn’t yet been integrated into “selling ceremonies.”

6. Rethink the “Why”

On the back of a long period of economic growth, the success of the luxury sector has relied on narcissistic behaviour like self-branding and exhibiting success on social networks, all while the state has been failing to perform its most basic function: protecting the people. Now, during weeks of confinement and collective hardship, these social motivations look weak and irrelevant. In a post-virus world, the more intimate values of luxury may prove to be more relevant than ever. Maybe, as G. Lampedusa wrote in The Leopard, “If we want things to stay as they are, things will have to change.”

Jean-Noël Kapferer is a sociologist, research fellow at Inseec U and the co-author of The Luxury Strategy. Jean Révis is the co-founder and CEO MAD, a Paris-based strategy consultancy focused on the luxury sector.

The views expressed in Op-Ed pieces are those of the author and do not necessarily reflect the views of The Business of Fashion.

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