The retail downturn caused by the Covid-19 pandemic has left major impacts on product demand and newness, especially within the luxury sector. In this report, we analyse luxury category demand shifts, promotion cycles, retail channels, pricing and more.
The coronavirus pandemic has shaken the luxury industry. The entire clothing supply chain is now disrupted, impacting everyone, from manufacturers through to consumers. With Italian factories and many countries still on lockdown, the luxury sector is predicted to lose up to USD45 billion in 2020. The pandemic has also affected consumer confidence with the luxury market being the most discretionary business in nature. Luxury e-tailer The Modist has closed its virtual doors amidst the outbreak, while luxury department store Neiman Marcus has just became another COVID-19 retail casualty.
With continued retail store closures and travel restrictions, this creates as an opportunity for online retailers to flourish in spite of the outbreak. However, as production and deliveries are halted, how are these retailers managing their newness, or the lack thereof?
In this report, we will uncover the strategies adopted by 5 luxury multilabel retailers in the UK – Net-a-Porter, Farfetch, Selfridges, MatchesFashion and Moda Operandi. Analysis was also drawn from Shopbop (China) and Lane Crawford (Hong Kong) to better understand the current state in the Eastern market.
More than 600,000 data points were screened from January to April 2020 against the same period in 2019 across womenswear categories.
All data used in this report comes from products retailing online as tracked by Omnilytics, unless otherwise mentioned.
The luxury fashion industry continues to suffer amidst the coronavirus outbreak. The virus, which overshadowed the Fall/Winter 2020 shows back in February, has also caused the upcoming fashion shows to either be cancelled or postponed.
Fashion houses including Gucci, Burberry and Prada have also cancelled their cruise shows. These shows, although less directional than on-season collections, are still a major resource for brands to revive their stock in-between seasons. With brands skipping the cruise season, some tried to push their pre-fall deliveries to October and November. Kering will also delay its fall deliveries so the current Spring/Summer 2020 collections will have more time to sell.
Furthermore, Saint Laurent’s recent announcement on skipping Paris Fashion Week and not adhering to any fashion calendar for the rest of 2020 has left many questioning on the status of fashion seasonality.
To uncover how this pandemic has impacted newness, we have looked at the new-in movement across luxury multilabel retailers and how they are managed in the current climate.
Overall, new product arrivals saw a downward trend in 2020. In the UK, newness looked set to outpace 2019. However, arrivals started to slow down in March as the government imposed a nationwide lockdown at the end of the month. The total new styles in March was down by 20% YoY before plunging further in April, by 60% YoY.
Farfetch experienced the biggest decline in total new-in with nearly 30% fewer new arrivals compared to the same period last year. The retailer’s new arrivals in April was at its lowest, accounting for a mere 6% of the total assortment. Net-a-Porter, which has resumed taking orders after temporarily suspending its services due to the COVID-19 outbreak, also experienced a dip in its total new-in – down 20% YoY.
Meanwhile, new arrivals in the Eastern market were on a much lower base from the start of the year compared to 2019. Total new-in were down by 40% YoY, with the lowest number also recorded in April.
New-in, which would have peaked in March to welcome the summer assortments did not happen in 2020 across all markets. This signifies the severity of the supply chain disruptions faced by brands. Among brands which saw reduction in new arrivals included Chloé and Balenciaga. Bottega Veneta, Jil Sander, Joseph and Jacquemus however still managed to drive consistent newness.
In the UK, apparel categories contributed to nearly 70% of new arrivals. However, non-apparel categories dominated newness in China & Hong Kong with 52% contribution.
In terms of sell-out, non-apparel summer essentials took centre stage in both markets, recording high sell-out growth YoY.
In the UK, consumers stocked up on their summer essentials despite being confined to their homes. Eyewear saw the biggest surge for non-apparel with a 183% increase in sell-out YoY, followed by Accessories. As the weather started to heat up, Swimwear was in high demand too as it recorded a 128% jump in sell-out YoY. Moda Operandi also reported a surprising swimwear spike among its luxury shoppers amidst the outbreak.
As the lockdown restrictions continue in the UK and consumers adjust to the new normal, apparel categories such as Intimates including Sleepwear and Underwear – saw more than 200% growth YoY in the market. Scarves in Accessories also experienced high sell-out activity as consumers look for an alternative to cover their faces.
In the Eastern market, Accessories, which mostly consisted of Hats and Scarves, contributed to a notable increase in sell-outs. As pubic services have resumed and travel restrictions were easing in the region at the time of writing, summery items such as Shorts, Eyewear and Swimwear were also popular.
With many countries still on lockdown due to the pandemic, differences in tastes and trends were evident across the markets:
In the UK, simplicity and comfort was key. Relaxed and simple Sleepwear that could also function as Loungewear were particularly popular. Cat-eye Sunglasses with minimal detailing were in high demand, as the style took up nearly 30% of total Eyewear sell-outs. Among notable brands included Dior, Prada and Saint Laurent. As for Swimwear, minimal and classic One-Piece Swimsuits also saw an uptick, as seen at Matteau, Onia and Hunza G.
While sell-outs have yet to surpass the levels of 2019, the demand for progressive and trend-led pieces suggested an improvement in consumer confidence in this region.
For accessories, wide-brimmed and bucket hats were particularly popular, especially by Eugenia Kim and Maison Michel. ‘More is more’ was evident in Shorts, as products with ruffles and paperbag waist styles gained traction. Printed bike shorts also showed no signs of slowing down. In eyewear, ‘70s style gold trim sunglasses were highly demanded, as seen from Gucci, Linda Farrow and Bottega Veneta.
Retailers managed to keep the communication going across different channels – from email newsletters, to Instagram, to their own website homepage. Following lower levels of newness in March, new style edits from retailers’ newsletters were creatively curated surrounding the outbreak to maintain relevance and keep customers engaged.
With remote working being the new norm, most retailers were pushing timeless styles and relaxed silhouettes to entice purchase. Colour stories and styles surrounding the work from home (WFH) theme were pulled to curate their new-in style edits. This was evident from the email newsletters sent by MatchesFashion, Moda Operandi, Farfetch and Net-a-Porter on their new arrivals.
As newness slumped and consumer sentiment remained low, retailers started to exercise first-time discount strategies in March to influence purchase.
In the UK, there was a surge in first discounts in March 2020 – a whopping 535% increase from February. As a result, total new discounted products saw a huge 400% jump in 2020 compared to the same period last year. Farfetch was the biggest contributor for the spike in March with over 51,000 SKUs. MSGM, Maison Margiela and Marni were among the top 3 brands that were discounted. The most common discount range exercised was at 20-29% off – much lower than last year, which was at 50-59% off.
A similar story appeared in the Eastern markets, which saw a spike in March. Although retailers typically exercise mid-season sale during the month, this year saw over 50% more newly discounted products compared to the same period last year.
To induce purchasing, retailers opted to exercise new discounts towards the end of March and early April. As the UK government strengthened police enforcement powers on March 26, a huge sudden jump on first discounts was observed at the end of the month, where more than 30,000 SKUs were discounted on March 30.
Some retailers such as Moda Operandi, Net-a-Porter and Farfetch also kept customers enticed by offering discounts of up to 25% off on new arrivals. Besides discounting on new arrivals, Moda Operandi used Trunkshows to manage its future newness, where customers could pre-order next season’s collections within a limited time frame.
Aside from keeping customers engaged, Farfetch protected the smaller boutique brands by launching the #SupportBoutiques campaign to ensure that they can keep selling. The retailer showed its support by offering 25% off on their products, increasing product visibility and helping with logistics, marketing and operations through its platform.
Moda Operandi came in top with a high total sell-out rate at 68%. The retailer managed to drive 80% full price sell-out despite its high median price. Its success can be attributed to its offering, having over 1,000 brands on its site, which is 2x more than the same period last year.
Selfridges & Co., another top performer, also achieved an above average sell-out with high newness. The retailer, which had the lowest median price compared to its counterparts, performed well with low discounting.
Meanwhile, Farfetch failed to drive high sell-out despite having more than 60% of its items on discount. It had 6x more SKUs than the retailers in this sample, but low newness. Although Net-a-Porter achieved an above average sell-out, they were mostly driven by discounts.
Moda Operandi had the smallest non-apparel contribution to its overall assortment, which was also reflected in its new arrivals. Although non-apparel saw a huge increase in sell-out compared to last year, the retailer’s high sell-out performance further signified its leading position in the apparel category.
Despite having a good mix of apparel and non-apparel, Farfetch and MatchesFashion’s low newness failed to drive higher sell-outs. Both retailers invested more on Bags, Shoes and Jewellery in their newness – categories with less sell-out growth YoY.
As the COVID-19 pandemic has drastically altered the way consumers spend, how have retailers reacted in their pricing?
Interestingly, most retailers offered more items in the higher price bands during COVID-19, including Moda Operandi, MatchesFashion and Selfridges & Co.
Moda Operandi’s products in the GBP 0-250 bracket showed a decrease in contribution by 8 percentage points compared to the pre-COVID-19 period. Items priced above GBP 2,000 also saw a 3 percentage point higher contribution. This strategy proved to work for the retailer, as its luxury shoppers did not mind spending on high-value items at full price especially for timeless products. This scenario is in line with its strong performance on overall full price sell-out as presented in Chart 6.
However, the same could not be said for MatchesFashion as this strategy did not translate well into its performance. The retailer saw a 5 percentage point reduction in contribution in the GBP 0-250 than the pre-pandemic period. Yet a large percentage of sell-out actually occurred in the lowest price band with low rates for full price sell-out.
Meanwhile, Net-a-Porter reduced its prices as the GBP 0-250 price range saw an increase of 3 percentage point contribution. This strategy, while working to increase sell-out, was mainly driven by discounts.
Shift in Market Demand: As people spend more time at home due to COVID-19, consumer demand has shifted from workwear and going-out attire to cosy loungewear and minimal, classic pieces. Although core apparel categories contributed to the majority of newness in the UK, sell-outs for non-apparel and summer essentials saw the biggest jump YoY.
However, styles remained varied between markets. The UK, which is still in lockdown at the time of writing, saw increasing demand for minimal styles. Meanwhile, countries which have been lifted from lockdown or their bans on public gatherings, such as China and Hong Kong respectively, have slowly begun to see an appetite for trendy pieces.
Smart Discounting: As online shoppers reportedly held back on discretionary purchases, Net-a-Porter, Selfridges & Co. and Moda Operandi opted to introduce new discounts to entice cash-strapped consumers. This resulted in a nearly 40% increase in sell-out in March compared to February. Although discount offered was only up to 25% off, it resulted in above average sell-outs for the retailers.
Price Adjustment: To capitalise on the new demand, some retailers opted to adjust their prices. However, due to the slowdown in luxury consumption, the price increment strategy did not work for all. The majority of sell-outs for retailers including Farfetch, MatchesFashion, Selfridges & Co. and Net-a-Porter, occurred in the lower price band.
Reinvent Existing Stock: To maintain an aura of newness, retailers should identify which seasonal products can be phased and moved to the next season. Classic pieces and non-apparels, such as accessories can be maximised by promoting them in style edits for consumers who are always hungry for newness. By proactively reviewing current inventory, brands can have a better plan for phasing future collections and clearing unsold stocks without resorting to deep discounts.
Know Your Audience: While the daily average spend in April has declined for Moda Operandi, the retailer managed to weather the storm as it understands its customers. From adjusting its price offerings to engaging with customers through its ‘Shop for a Cause’ initiative, to introducing trunk shows, it has proven its success by capitalising on data.
Look to the East: Merely relying on past data is not sufficient to manoeuvre from the current fashion retail crisis. As China accounted for 35% of global luxury goods, brands should monitor the market and look out for emerging trends. Although the nation’s road to recovery remained slow, the growing demand on trend-led and seasonal items is an indicator of improving consumer confidence.
As the new wave of e-commerce in China has attracted new customer segments, brands should start investing more on the online channel to create a personalised digital experiences for luxury consumers.
