The Luxury Landscape: What Has Changed?

The Luxury Landscape: What Has Changed?

Written by Phung Yi JunApril 24, 2020

The Luxury Landscape: What Has Changed?

Compared to wholesale retailers and mass brands, luxury fashion not only has the highest chance of surviving the pandemic, but also of regaining market share. 

Further Reading: The Success of Luxury Brands Today

Luxury brands have stronger balance sheets to weather the storm.

While sales took a nosedive in the early months of 2020 (LVMH reported a 15% revenue decrease), China’s steady recovery is lifting numbers. In a single Saturday, Hermès’s second flagship store in Guangzhou saw $2.7 million in sales.

Some luxury brands like Moncler and Kering have also reduced their dependence on wholesale partners, which reduces third-party impact. 

However, this doesn’t protect luxury brands from economic and consumer shifts. As the pandemic wages on, a pivoting change in how luxury operates – and digitisation – is inevitable. 

#1 Tourism On Pause, Travel Retail Effectively Halted

‘Revenge spending’ has been a hot topic in China, as pent-up consumer demand built up over the month-long lockdown. In fact, LVMH’s report states that in the second half of March, sales were recovering in China, as well as in Taiwan and South Korea

Further Reading: China’s Fashion Reboot: 5 Lessons The Industry Must Know

Despite consumer confidence slowly picking up in China, luxury brands are faced with a pressing issue: what will become of retail travel? 

Due to the social value of buying luxury goods in fashion capitals, as well as the attractive price differences, Chinese consumers prefer to shop outside of Mainland China. According to McKinsey, more than half of China’s luxury occurs abroad. But now, with borders closed and travel constrained, luxury brands have to find new ways to boost domestic expenditure. 

Much of the rest of the world is only just beginning to feel the impact of the coronavirus. Some countries are in extended lockdowns, and death rates continue to rise – making the future of a speedy recovery increasingly bleak. Retail in fashion capitals like Paris, New York and London, has been shut down for social distancing. 

While the snap-back in luxury spending is seen as a good recovery sign, talk of its longer-term sustainability is heated, given the increase in job losses. With tourism halted, luxury brands must nurture the local market – and rethink store networks.

#2 The Future of Online is Now 

E-Commerce

In March, Prada and Miu Miu announced the opening of their flagship stores on Tmall, a popular Chinese website, in hopes to “provide wider product choice and diverse online services for the customers”. The strategic move is optimally timed, as consumers increasingly look to online. 

Prada on Tmall. Image Source: Jing Daily

In a call with analysts Jean Jacques Guiony, Chief Financial Officer of LVMH, said that businesses with a strong online presence saw e-commerce sales increase, namely in Europe, China, Japan and the US. E-commerce for Gucci saw a rise as well, holding a 9.5% spot in its retail sales. Saint Laurent, another luxury brand under Kering, is also ‘accelerating’ its penetration online. 

Omnilytics’s data reported the same phenomenon for global retailers too. In 2019, from March until the last few weeks of April, multi-brand luxury retailers across the UK and US markets like Farfetch, Yoox and Net-a-Porter, saw an average sell-out rate of 27.21%, much lower than this year’s 44.11% of the same timeline. 

However, moving to e-commerce does pose a different set of challenges for luxury brands: counterfeit. As luxury brands move online, thus increasing their visibility, counterfeit products may soon follow – a weakness Amazon has been criticised for

Digital Operations

Digitisation extends beyond e-commerce, it encapsulates moving operations digitally as well as crafting beautiful luxury experiences. 

On the buying chain, virtual showrooms are gaining popularity among fashion buyers. DFO, a virtual fashion showroom and buying agency, reported that 80% of its sales targets were achieved. Skmmp, a fashion supply chain platform that developed digital showrooms, has also been approached by Bottega Veneta and Tod’s.

VR/ARs have been around for years, but the pandemic has forced their necessity as luxury finds a way to recreate its high-touch, personalised services. Partnering with Chinese video platforms Douyin, Yizhibo, iQiyi, as well as luxury e-commerce platform Secoo, fashion house Lanvin broadcasted its Paris’s fashion show via VR.

#3 Shifting Excess Inventory to Off-Price Channels

Luxury isn’t a fan of discounting. 

Historically, luxury brands rarely resort to discounting so as to protect brand equity and uphold an affluent brand image. But now, sales are at an all-time low and inventory is at dangerous levels, leaving luxury brands with little option. Nordstrom, for example, has placed up to 60% of its spring merchandise on sale. 

The Luxury Landscape: What Has Changed? | Nordstrom's spring sale
Nordstrom’s website banner. Source: Omnilytics Visual Merchandising Solutions

Heavy discounting is seen across all segments, as brands and retailers scramble to offload unsold inventory. How can luxury brands ensure constant cash-flow, while mitigating damage to the brand? 

One way is to shift excess inventory to off-price channels.

The Luxury Landscape: What Has Changed? | The Outnet
Launch date tracker for The Outnet, as tracked by the Omnilytics dashboard

The Outnet saw a sudden spike of first-time discounts in April, led by Victoria Beckham, Dolce & Gabbana and Ganni with the highest number of discounted products, ranging from 40% to 70% off. 

The Luxury Landscape: What Has Changed? | The Outnet's Discounting Strategy
46,352 data points were analysed on products retailing online for The Outnet in the US market from January – April 2020, as tracked by Omnilytics Dashboard.

Dolce & Gabbana enjoyed 40% sell out at the retailer in just 21 days. 

Other Notable Shifts

Trends Will Change: To lessen the impact of an inventory buildup, LVMH’s report states that it has plans to shift seasonality: extending its spring/summer collection and delaying fall deliveries. 

This may impact trends across different segments, like fast fashion, as seasons shift. Brands and retailers may either launch summer collections according to the calendar or rush to markdown summer merchandise and launch fall products earlier, in June or July.

On the Omnilytics dashboard, the keyword ‘spring’ has seen an uptick, as some brands and retailers have forged on through the coronavirus’s disruption to seasonality and released their spring collections. 

The New Normal

Naturally, luxury brands are ecstatic at China’s recovery – it represents a beacon of hope for the rest of the globe. But it’s important to note that China’s V-shaped recovery may be a one-off phenomenon, as other countries lag under less effective governmental control.

What’s most important for the luxury industry is to constantly monitor market movements, adapt accordingly, and acknowledge that we are living in an entirely new world. The Covid-19 landscape is likely the new normal.

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