These are unprecedented times for us all. No matter which part of the world we live in, the COVID-19 has impacted the way we live, work, love and laugh. While staying safe is the number one priority, we are all trying to figure out a lockdown routine that allows time and space for work, self-care, nutrition, and of course precious family time.
The questions on everyone’s mind through this all are:
1) When will this end and
2) What will the world look like when it does
While we don’t have a definite answer to either of the questions, we have outlined some of the possible scenarios for the luxury industry when this is all over.
The Case For Rationalization
This has been and will continue to be a time for reflection and realization for many. We have finally been forced to step on the brakes of this frenzied life we have been living. With a never-ending expanse of time lying ahead, many of us have begun to question the purpose of the materialistic goods we have coveted and collected. Questions like – Will I ever really need these again ? Do I finally have enough? – are likely to pass through our minds during this phase.
Many will end up spending some time cleaning our closets only to discover hidden treasures that had been forgotten, resulting in a trunk load of things we can’t wait to use and enjoy again.
For the segment of people who fall in this category, retail and luxury expenditures are likely to be few and far between. Would this impact the industry significantly? It certainly will. Not just in the short term, but in the long term as well, as it would be a result of a change in outlook in a section of society.
The Impact Of An Economic Slowdown
A global slowdown sadly is inevitable. With job and salary cuts that lie in store for many, economic and financial stability and growth, that are the key drivers for luxury spending, will be compromised. Without financial stability, the idea of splurging on luxury just won’t be a high priority.
One hopes that monetary and fiscal measures taken by Governments across the world will help countries emerge from it sooner than later. When that happens, there will be a boom time for manufacturing and service industries, and investment decisions will begin to bear fruit. That is the time when luxury fashion houses will see real growth again. But until then, the situation is likely to be grim.
Pent Up Demand
So what happens when we are on the other side of the pandemic, able to resume our lives, go about in the world? What’s the first thing you’re going to do?
Well, if you’re like us and many in the community – first priority may be having your hair done, LOL. But beyond that, there could be pent-up demand for new luxury items.
Perhaps you’re spending your time at home online scoping out and book-marking our ‘favorites’ from this season’s latest collection. When we do get out, we will want to look and feel our best. It will be a time when, depending on financial status and affordability, purchases will see a surge. Perhaps, ‘that one thing’ you buy to spoil yourself or your loved one will help ring in a sense of normalcy that will make the expenditure worthwhile!
On the other hand, you might have changed your priorities – either of financial necessity or reframing of life. Many die-hard and dedicated shoppers report a complete lack of desire to shop. Time will tell whether and for how long this will last when the pandemic passes.
So while demand may be limited for a while, the closure of factories around the world could result in a demand-supply mismatch. A scenario where supply can’t even match the reduced demand for luxury goods is possible.
Remember, Hermes, Chanel and Louis Vuitton, among others, have shut down production of their luxury goods. Certainly there will be some lag time to fire up the production, particularly for those who have shifted to making medical necessaries for the crisis.
In other words, at first, you may not be able to buy what you want when you want. Whether this result in price increases also remains to be seen – as we expect these companies to also be under financial pressure to boost sales revenues.
Re-Direction Of Discretionary Expenditure
A luxury consumer normally splits his or her annual budget into a few buckets which would also include luxury travel and holidays. When things return to normal, there will still be hesitation to take a flight or go on vacation. Luxury budgets, though reduced, could instead likely be spent on luxury retail, dining and local experiences.
We expect most luxury spending to be localized for sometime. The Chinese used to account for 50% of global luxury expenditure, most of which was outside China. Travel restrictions around the world will result in Chinese luxury spending taking place locally, not necessarily in the same pattern as before.
The luxury industry has always shown agility and this time is no different – take the case of Louis Vuitton recently switching production lines to make hand sanitizers for distribution in France (Read: Louis Vuitton Uses it’s Perfume Laboratories to Make Hand Sanitizer!). Recessions tend to be a time when even the biggest business houses rationalize and optimize the way they operate. It ends up being a time for course-correction, and often consolidation. Those that survive emerge stronger than ever before.
What does luxury mean for you now? What is the first thing you will do when this is behind us? We’d love to hear from you…