Home News Luxury is being redefined for the Covid Era – Here’s How, and Why

Luxury is being redefined for the Covid Era – Here’s How, and Why

by gbaf mag

By Emma Chiu is Global Director at Wunderman Thompson Intelligence

Luxury is poised for change. And about time, too. Even before the coronavirus pandemic, it was struggling to find its footing. Like many sectors, shifts already underway have been magnified and accelerated by Covid-19. To be fit for the future, luxury brand owners must now change – their business models, how they interact with consumers, even their understanding of what luxury is – and they must do so, fast.

Where we were

By late 2019, it was clear that luxury had lost its footing. How consumers had come to define luxury – along with how they wanted to interact with it, where and when – had shifted. And many traditional luxury brands were struggling to keep up.

Consumers had grown less attached to legacy luxury brand names and more interested in luxury brands’ values.

Ethics, sustainability, thoughtfulness (about societal change, for example) and social responsibility were fast-growing concerns. And luxury brands without such values were being rejected – especially by younger Millennials consumers and Generation Z.

In vogue were those luxury brands able to demonstrate strong ethical credentials – with ethical production lines, and thoughtful systems and processes.

To an emerging cohort of new luxury consumers, the most appealing luxury brands weren’t those with the highest price tag or greatest exclusivity but those that acted and spoke in a way that best represented their outlook on the world and how they wanted to be seen in it.

In short, by late 2019 the luxury landscape was one in which a brand needed to show – through both its actions as well as the words it used – that it cared in order to prosper.

Gucci was one of a number of brands well-positioned at this point. In September 2019, it went carbon neutral. Then, last November, its CEO Marco Bizzarri published an open letter to CEOs asking them to take urgent steps to reduce their greenhouse emissions instead of solely focusing on growth goals in coming decades[i].

Luxury events to promote luxury brands were also placing sustainability centrestage.

Sweden’s fashion week was among a number of events cancelled[ii] to allow a focus on launching more sustainable alternatives. And organisers of Copenhagen Fashion Week in January this year put in place Sustainability Action Plan 2020-2023[iii] to cut the event’s climate impact by 50% and make it 100% zero waste as a direct result.

Another important shift in luxury was the emergence of new business models – the rise of second-hand luxury (also known as ‘preowned luxury’) is one example of this.

In 2017, Stella McCartney – a brand already committed to sustainability – became the first luxury name to promote the presence of its products on digital resale platform TheRealReal[iv]. By 2019, the luxury second-hand market was worth $24bn and growing four times faster than the premium luxury market – at 12% a year compared to 3%, according to one study[v].

The emerging rental luxury model is another example. In the new age of rentable luxury, the success of pioneers such as Rent the Runway led observers to suggest that luxury consumers w

ere poised to be less concerned with ownership than ever before[vi].

On top of new business models, however, the other big trend in luxury is the onward upward growth of ecommerce – though this is a form of retailing to which many luxury brands had come late and with which many were still struggling.

As well as getting to grips with how best to create a luxury ecommerce experience online, striking an appropriate balance between ecommerce and In Real Life (IRL) retail experiences – a hybrid approach that some suggest is the inevitable future for luxury retailing – was proving a common challenge.

One exception is Burberry. Its latest effort to blend physical and digital – what it calls luxury’s first ‘social retail store’ – recently launched in China[vii] is certainly innovative. Even so, for now – like many – Burberry’s concept remains an experimental one-off.

And then came the world-wide coronavirus pandemic.

The impact of Covid-19

Inevitably, lockdowns had a major impact on luxury shopping behaviour, channel dynamics and travel plans and many select retailers, businesses, luxury hotels and hospitality services closed.

Pre-coronavirus, between 20% and 30% of luxury industry revenues were generated by consumers making luxury purchases outside their home countries, according to one report. Meanwhile the rapid growth of experiential luxury – one of the luxury sector’s most dynamic and fast-growing components – was severely curtailed[viii].

Across the board, consumer sentiment was severely dampened and desire, ability and intention to spend on large ticket items was significantly curbed. As a result of all this, estimates now suggest luxury sales could fall anything between 25% to 30% in 2020 year on year[ix].

Luxury brands’ response has taken a number of different shapes and forms.

For some, an immediate strategy was to pivot their businesses in order to shift to supplying items that could help healthcare services working to treat people with coronavirus – LVMH’s decision to use Dior, Givenchy and Guerlain facilities to produce free hand sanitiser for healthcare workers in France was a case in point[x].

For others, Covid-19 dramatically accelerated their journey into the digital age. This means anything from stepping up efforts to move digital to the centre of the operating model to speeding up enhancements to the online shopping experience – such as with the introduction of livestreaming.

What next?

Overall, the pressure is now on luxury brand owners to build resilience, embed abilities to be more flexible and agile, and better anticipate changes in consumer behaviour. Expect luxury brands to evolve in any – or a number – of the following ways:

  1. From aesthetics to ethics

Luxury will be further redefined – away from exclusivity and top dollar price tags, with philanthropic concerns centre-stage. Already, a number of luxury labels – including Michael Kors – have announced a reduction in their collections to be more sustainable[xi] and industry luminary Anna Wintour called for slower and more mindful luxury fashion[xii]. This will accelerate with a brand’s ethical values increasingly becomes its brand mission.

  1. The new premium: trust

With ethics as luxury’s new currency, a new premium will be placed on trust. This means luxury brands will need to work harder to be more transparent and accountable in their business goals, systems and processes – such as around the efficacy of the ingredients or the third-party suppliers they use.

  1. Less stand-offish; more relatable

As luxury brands work harder to demonstrate the values the new generation of luxury consumers expect and seek to espouse, they will need to work harder to foster a more relatable and ethically driven tone of voice across all their consumer communications and interactions, too.

  1. Luxury retail re-imagined

The canniest luxury brands will use the disruption to normal activities caused by Covid-19 as a valuable opportunity to re-set the luxury retail experience. Not only is this likely to result in a significant upgrade and increased emphasis on ecommerce and the emergence of a new generation of hybrid real world and online luxury retail experiences, it may also mean more luxury brands adapting to the fast-growing Direct-To-Consumer retail model. Expect innovation in luxury retail experience to become a key battleground.

  1. Luxury localism

The pandemic has led people to travel less. While travel spending will return as the coronavirus crisis passes, it is not yet clear to what extent. Until then, opportunity will lie in luxury brands capitalising on the upswing in consumer interest in, and commitment to, spending on local products and brands during lockdown. Local luxury brands or those able to capitalise on localism and community interests are likely to be well-positioned.

  1. Combining forces

With luxury brands focusing to a greater extent on philanthropic values, brand missions will become longer term as their end goals – sustainability, for example – grow ever more complex. If these goals are to be achieved, collaboration between different brands is likely to be needed. Expect more luxury brands informally joining forces with others – as Dior did recently when it collaborated with Nike for the launch of Dior’s Air Jordans – but, increasingly, for the greater good.

[i] https://www.gucci.com/uk/en_gb/st/stories/article/ceo-carbon-neutral-challenge

[ii] https://www.independent.co.uk/life-style/stockholm-fashion-week-cancelled-swedish-fashion-council-sustainability-a8983906.html

[iii] https://www.instyle.com/fashion/copenhagen-fashion-week-sustainable-clothing

[iv] https://luxe.digital/business/digital-luxury-reports/luxury-resale-transformation/

[v] https://luxe.digital/business/digital-luxury-reports/luxury-resale-transformation/

[vi] https://www.luxurysociety.com/en/articles/2020/02/rise-sharing-economy

[vii] https://fashionunited.com/news/retail/burberry-blends-physical-and-digital-with-first-social-retail-store-in-china/2020073134741

[viii] https://www.mckinsey.com/industries/retail/our-insights/a-perspective-for-the-luxury-goods-industry-during-and-after-coronavirus

[ix] https://theconversation.com/how-the-covid-19-crisis-could-remodel-the-luxury-industry-138137

[x] https://www.forbes.com/sites/richardkestenbaum/2020/03/15/lvmh-converting-its-perfume-factories-to-make-hand-sanitizer/

[xi] [xi] https://www.forbes.com/sites/cassellferere/2020/07/12/slow-fashion-racism-micheal-kors-fashion-week/#511693e83de3

[xii] https://www.independent.co.uk/life-style/fashion/anna-wintour-fashion-industry-coronavirus-naomi-campbell-podcast-no-filter-a9479451.html

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