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Home News The Impact of the pandemic on Luxurious Brands and companies

The Impact of the pandemic on Luxurious Brands and companies

by gbaf

By Daniele Pederzoli and Bruno Godey, NEOMA Business School

The pandemic has profoundly affected all economic sectors internationally. Luxury is obviously no exception. The closure of stores for several weeks, in China from the beginning of the year, in Europe from March and in the Americas from May/June weighed heavily on the sales and results of the major luxury brands for the first half of the year. At this stage, a return to normal is not expected for several months or even years. The abrupt halt in international tourism was another very impacting factor for the luxury sector, not only for the brands that sell products, but also and especially for the luxury hotel and restaurant brands that are heavily dependent on international tourists. These consequences of the pandemic can be seen in the short term, but it is also possible to place them in a longer time frame.

In the short term, all of the major luxury brands recorded sharp declines in sales during the first six months of the year. The first example is the British brand Burberry, which lost 48% of its revenue in the March-June quarter, with slumps in EMEA (-75%) and the Americas (-70%). Asia, meanwhile, fell by 10%, but returned to growth in June. The world’s leading retail group, LVMH, fared better, but with sales down 27% in the first half of the year and profit from recurring operations down 68%, but still positive. Kering, another major French group, recorded a 29.6% decline in revenues in the first six months. Its operating profit also remains positive, but is down 57.7%. Capri Holdings (Versace, Jimmy Choo and Michel Kors) suffered a 66.5% decline in revenues in the first quarter of FY 2021 (March-June 2020) with a negative operating margin of €162 million. However, as the company emerged from its confinement, demand in some countries exploded, as if consumers had decided to rush to luxury products to compensate for the frustration experienced for weeks. The phenomenon was so great in China and Korea that it was described as revenge shopping.

Beyond a few spectacular one-day sales records, demand is far from returning to pre-crisis levels in all countries. Moreover, there are many reasons for concern in the medium term. The drop in international tourism has deprived luxury brands of one of their most dynamic channels in recent years. As well as this, a progressive increase in on-line sales continues to impact luxurious brands and companies in various ways. During the first half of 2020, Kering recorded growth in online sales of 47.2% (and 72.4% in the second quarter). Farfetch, the online sales platform that has built its fortune through a partnership with more than 1,300 physical stores, experienced 48% growth in its Gross Merchandise Volume (GMV) in the second quarter of 2020. In that same quarter, Farfetch attracted more than 500,000 new customers, an all-time record for the British company. Ferragamo, meanwhile, took advantage of the pandemic to offer its customers a new site that offers all the products of the famous Florentine brand. Armani, which has been collaborating with YNAP (YOOX Net A Porter) for 20 years, has launched the “Next Era” project, which will allow delivery to the consumer from the closest point to his home, whether it is a YNAP store or a YNAP distribution centre.

But the online panorama must obviously take into account the growing role played by social networks to increase brand equity and to establish stronger relationships with consumers. There are two particularly significant examples of the ability of luxury brands to adapt to the context thanks to social networks. The first is Gucci, which on the last day of Milan Fashion Week presented the “Epilogue” collection in live streaming and received 35 million views. The famous brand of the Kering Group carried out its live broadcast on its website and application, as well as on Youtube, Twitter, Weibo and Facebook. The second example is that of Dior, which presented its cruise collection in Lecce with a fashion show that was closed to the public, but was broadcast on the brand’s site as well as on Instagram, Facebook, Twitter, and Tencent. This fashion show attracted more than 20 million contacts. If we consider that many of these networks have set up a “shopping” function during the viewing of a photo or video, we can easily foresee the rise of social commerce for luxury brands that will know how to use them.

Finally, the last trend that seems to be worth mentioning is the trend towards more responsible production and consumption on the part of luxury brands.  Several studies have shown that consumer sensitivity to the challenges of sustainable development has been greatly enhanced during this crisis.  The luxury sector will not be able to escape this movement, perfectly illustrated by the concept of “slow” fashion proposed by Armani. Michael Klinger, CEO of MyTheresa, the American luxury goods retailer, recently stressed the importance for luxury brands to plan a long-life cycle to celebrate “work, art and crafts” that represent the true nature of luxury goods. A return to the roots, so to speak.