How will the luxury goods industry evolve following the COVID-19 crisis and what strategies may help shape and strengthen its future? These are two questions that are top of mind for many in the industry.
And while the industry represents wealth and glamour (who doesn’t love a designer bag?), it is not limited to the wealthy few; millions of mid- and low-income earners rely on this industry for their basic income.
The luxury goods industry sailed through the financial crisis of 2008 and, contrary to what many industry experts predicted at the time, the industry’s demise never came. Indeed, the industry came out of the financial crisis stronger, and more resilient than ever.
European brands make up 70 percent of the global luxury goods industry market, yet it is not locals who bolster them; they rather spend their money otherwise, and the same is true for U.S. brands and consumers. Instead, since 2008, the industry has been relying heavily on Chinese and Middle Eastern customers, particularly tourists. That was all fine and well. But then came the COVID-19 pandemic.
The shift in consumer identity, slowly forged in preceding years, helped the industry overcome the 2008 crisis. The strategy of relying on foreign customers was fraught with many of its own risks at the time, including geopolitical changes, volatile exchange rates and even the unexpected impact of anti-bribery laws in China. Yet, the industry’s emphasis on tourism trade may impact the industry now more than ever. Today, the foreign focused strategy is proving risky once more. With entire cities under lockdown, borders closed and in-store shopping experiences muted or nonexistent, a change in tourism and evolution in consumer behavior within the luxury goods industry can be expected.
Bernard Arnault is fond of saying that a good product can last forever. He is right, and with the right strategic decisions, the luxury goods industry will continue to grow and prosper. I have previously written on the strategy the luxury goods industry should pursue in order to withstand economic turbulence. For the luxury goods industry to remain profitable, to weather any economic turbulence, and to thrive in the future, it must reshift its geographic focus — and target not only emerging markets but also its native market. The luxury goods industry should, and can, no longer rely on tourism for the biggest chunk of its sales.
In reshifting its strategic focus, the luxury goods industry should adapt to evolving market sentiments. Luxury goods companies must (a) adopt strong ethical and sustainable values and express these clearly and publicly, (b) constantly adapt to consumer taste, (c) offer products that are investments and (d) establish a strong online sales presence.
Strong ethics increase sales and revenues. Corporate social responsibility is key to attracting customers. It is impressive how the industry has pulled its weight during the pandemic to meet the urgent health-care needs of society by using its manufacturing plants to produce facemasks and hand sanitizer. Customers have gained respect for these brands.
Consumer tastes are constantly changing and, as such, the luxury goods industry needs to change with them. These tastes range from the customer who wants to stand out of the crowd and be unique, to the customer who just wants to be like everyone else. Companies should recognize these different consumers and design products that will meet their needs. The art is to create a balanced and exclusive product line with enough differential products whilst keeping the choice limited. Indeed, launching new collections every season should no longer be needed.
For many people, purchasing luxury products feels like an investment; brands should strategize accordingly. Expensive, non-collectible designer sneakers that can be worn for merely one season will be a product of the past.
Luxury brands have a strong online marketing presence, but now more than ever, they need to increase their online sales presence, too. Going to a store wearing a facemask, using hand sanitizer and following directions has no appeal and is no longer a pleasant and fun in-store experience. The luxury shopping experience, with personal shoppers and personal advice, can and should happen digitally. Brands should allow clients to experience a perfect shopping experience; whether it is from home or in-store. For example, let clients pre-order all items online, and then bring the clients to the store by appointment to try, feel and finally choose.
This year will be marked by closed shops and uncertainty, but also of change, and hopefully, progress. Not much is needed to solidify the industry’s foundations, and with some strategic adjustments, the industry will come out of this crisis stronger than ever.
Gila Marelus has a passion for fashion and has an MBA from the Katholieke Universiteit Leuven.