Amid the coronavirus pandemic, many luxury companies have pivoted to address urgent public-health needs: factories that produced scarves and perfumes now manufacture face masks and hand sanitizers, and many luxury groups have made monetary or product donations to hospitals and other not-for-profit organizations.
In a longer-term, with millions of people relying on the luxury-goods industry to make a living, this unprecedented crisis forces luxury players to jump into the future now.
Unprecedented recession
With 20 to 30 percent of revenues generated by consumers making luxury purchases outside their home countries, the industry is heavily dependent on "global shoppers". [1] The suspension of most international travels therefore had an immediate effect on sales, and the impact was amplified by the closure of shops and the great confinement which followed the global spread of the virus.
As the pandemic is shaking some of the foundational aspects of the luxury industry sales are set to contract between 20-35% in 2020 according to Bain & Company. [2]
Actually, according to the market research firm, after strong start to the year in all key regions (Mainland China, Europe, America), the collapse of tourism and the imposition of lockdowns led to an estimated 25 percent drop of sales in the first quarter of 2020. Luxury sales in Japan and the rest of Asia also declined, albeit at a slightly slower pace.
For its part, Euromonitor estimates the fall in sales of luxury goods to 18% in 2020, with no category being immune to the pandemic. [3] Most of the main luxury markets will be impacted: -25% for North America, -22% for mainland China (but only -5% in Japan and -1% in South Korea), between -15% ( United Kingdom) and -26% (Switzerland) in Western Europe, where the German market is expected to decline by 23%, France and Italy by 20%.
Digital and Asia to weight more in the future
From the start of the crisis, online sales have remained resilient. When stores are closed, e-commerce is a crucial channel for keeping sales up, communicating with customers, and forging a sense of community around a brand? For the future, McKinsey therefore recommends brands to accelerate their digital investments and shift media spending to online channels.
According to Bain & Company, the online channel, already experiencing double-digit growth in 2019, will continue to gain share and account for up to 30 percent of the market by 2025. This goes hand-in-hand with the younger generations (Gen Y and Gen Z) becoming the majority of the luxury market.
Furthermore, as China has begun to lead the way toward a recovery, Chinese consumers are set to cement their status as crucial drivers of the industry, accounting for nearly half of all purchases worldwide by 2025, according to Bain. As a region, mainland China will account for 28 percent of the luxury market, up from 11 percent in 2019.
“There will be a recovery for the luxury market but the industry will be profoundly transformed,” said Claudia D’Arpizio, a Bain & Company partner and lead author of the study.
However, it will take time for the market to recover. Bain & Company anticipates that a recovery to 2019 levels will not occur until 2022 or 2023. Market growth will resume gradually from then on, reaching an estimated EUR 320-330 billion by 2025.
