How will luxury brands survive the COVID-19 crisis?
The 4 strategies luxury brands need to implement now to succeed in a post-COVID future.
Luxury retail has suffered tremendously in the wake of the coronavirus pandemic. Nevertheless, industry players are optimistic that with a firmer grasp on retail data, the sector can bounce back and thrive in the new normal.
The coronavirus pandemic has severely disrupted the retail sector. Lockdowns have forced physical stores to close for months on end and supply chains have crumbled in the wake of both previous and emerging movement restrictions.
In particular, luxury retail felt this disruption. Because of reduced mobility, especially internationally, sales to the industry’s primary customer base reduced significantly. Meanwhile, lockdowns around the world kept stores closed and shoppers at home.
Recently, luxury companies have been restrategizing and drafting the roadmap for the industry to rebound after the COVID-19 crisis.
An increase in e-commerce activity has also favored luxury brands that were quick to gather insight from prevailing trends and rejuvenate their online presence even before the pandemic. Prada, for instance, experienced triple-digit growth in its e-commerce channels during and after the lockdowns, thanks to its investment in group digital platforms.
Industry experts believe luxury will bounce back stronger after the crisis. According to McKinsey & Co., consumers will likely return quickly to paying full price for luxury goods – the same way they did after the 2008 global financial crisis. The firm anticipates growth of 1% to 4% for luxury retail in 2021.
Read on to unravel how retail data can combat the pain points luxury brands are experiencing in the midst of the coronavirus.
The impact of brick-and-mortar closures
The luxury industry has relied heavily on physical stores to drive sales. Showrooms offer shoppers a high-end experience that aligns with the prestige and price tags of the items on sale.
When the COVID-19 crisis hit, it dramatically affected brick-and-mortar outlets. Numerous luxury shops were forced to shut down during lockdowns. Since many luxury stores are typically located in expensive real estate areas such as London’s Mayfair and New York’s Fifth Avenue, high rents quickly became an issue and rushed many to get out of their leases.
Now that many countries are going into second lockdowns, traffic into brick-and-mortar stores is far from recovery. The prevalence of remote work has led to fewer people visiting metropolitan areas. The lack of tourism is also impacting sales adversely, where airport-based luxury retail, which has typically experienced steady growth in recent years, is yet to get back on its feet. Meanwhile, face masks and body temperature checks have significantly washed down the high-end shopping experience of physical luxury stores.
As 2020 draws to a close, players in the luxury sector and in retail as a whole are increasingly diversifying their channels.
Luxury retailers are benefiting from e-commerce
Brick-and-mortar troubles have motivated the luxury industry to turn its focus to the digital realm. Several major brands have established or reinvigorated their online presence, either using their platforms or third-party e-tailers such as Net-a-Porter, Farfetch and MatchesFashion.
Online stores have been superseding physical outlets even before the pandemic. While both online and brick-and-mortar businesses fell behind after the 2008 Global Financial Crisis, brick-and-mortars failed to regain their former glory. E-commerce, on the other hand, rose exponentially in the years that followed, largely propelled by the prevailing smartphone age.
Today, the transition from physical to online luxury stores is in the highest gear ever. With the COVID-19 crisis, traditional stores are spectating helplessly as competitors with strong online presence get ahead. E-commerce is giving retailers the chance to broaden their reach and tap into search engines to drive traffic. Since running an online store does not come with the same overhead costs as a brick-and-mortar, online businesses are saving more money for strategic initiatives like unlocking new market segments and investing in more effective data analytics.
Focusing on e-commerce is no longer an option for luxury brands, but a necessity. Even when the worst is over, online luxury retail will certainly continue growing as the pandemic will have irreversibly shaped shopping habits. Any luxury retailer that wants to survive and thrive post-COVID must prioritize this trend and adapt.
These four moves will carry luxury through the pandemic
Luxury brands know they cannot afford to sit back and wait for the market to recover on its own. Many are reacting positively to the disruption and taking the right steps. Based on learnings from the pandemic so far, we have outlined four notable actions for brands to utilize that will lead to success in a post-COVID future.
1. Embracing e-commerce
Now more than ever, luxury companies need to prioritize their digital businesses. E-commerce is not enough to counter the losses luxury brands incurred from brick-and-mortar closures and the tourism plunge, but it can soften the blow.
Retail customer preferences have been leaning away from brick-and-mortar in favor of online stores for some time now. This trend will continue with greater vigor after the pandemic. Bain estimates that e-commerce could contribute as much as 30% of total luxury sales by 2025.
2. Re-structuring fashion shows and trade fairs
Trade shows and fashion weeks have always been a major part of the luxury industry. They present crucial ways for high-end brands to maintain exciting relationships with their customers and partners.
With coronavirus restrictions still in place for large gatherings, luxury players have diligently looked into alternative avenues to deliver these events.
The Shanghai Fashion Week in April was the first demonstration that it is possible to hold a significant fashion show online. Since then other major events including the Spring 2021 runway shows, Couture Week and the more recent GucciFest have all showcased online, experimenting with digital innovations like live streaming and virtual reality (VR).
These events prove just how successfully the luxury industry has reinvented itself amid lockdowns and social distancing, creating robust and impactful digital connections. Beyond the pandemic and even as fashion shows return, we expect luxury brands to continue exploring more experimental and flexible digital marketing initiatives to reach more customers, save on costs and reduce their environmental footprint.
3. Reconnecting with local customers
As much as 40% of global spending on personal luxury items comes from buyers shopping outside their home countries. Luxury customers prefer to shop while traveling because of cheaper rates and the sense of authenticity that comes with buying a brand in its country of origin.
Even when travel normalizes, it will take time for international tourism to get back on its feet. This presents an opportunity for brands to refocus attention back to local markets, banking on tailored experiences, stronger omnichannel offerings and deeper engagement.
Luxury powerhouse Dior unveiled a virtual pop-up shop exclusively tailored to shoppers in the UAE during Ramadan. The digital boutique showcased some of Dior’s most iconic creations reimagined for the region.
At a time when travel is significantly hampered, such targeted campaigns can recover lost sales, cultivate stronger brand loyalty and build a solid foundation for sustainable future growth.
4. Focusing sharply on retail data
As COVID-19 continues to disrupt the luxury industry, players are increasingly turning to data for answers. From price adjustments and new campaigns to incoming and outgoing competitors and their successes and failures, they want to know all the trends and shifts in the market. Brands also want to analyze the impact of new initiatives, track emerging products, as well as optimize product assortment and placement.
Taking from the EDITED findings above, retail data and analytics is also proving useful when developing agile and competitive pricing for luxury items. Deciding on a pricing strategy can be a challenging task with seemingly endless variables at play. Plus, now that e-commerce is taking center stage in luxury retail, shoppers have access to thousands of retail stores and can compare prices with ease. With automated retail analysis, retailers can derive the right price points based on important factors like product trends and competitor activity and influence consumer reactions and decisions toward their products more effectively.
Unlocking the value of retail data with EDITED
As the year ends, luxury retailers must rise to the challenge and make the necessary moves to guarantee survival and success. E-commerce, digital technologies, local customer reactivation and especially retail data are critical for the present and future of luxury
In today’s climate, retailers cannot rely on physical market visits to see what is in stores and what shoppers are buying. Moreover, competitors are all responding to the pandemic in their own unique ways, which means the traditional ways of learning from the industry aren’t always applicable.
So, if e-commerce and online data analytics is not given the attention and investment it deserves, retailers risk falling behind and the ability to compete in today’s dynamic industry.
With EDITED, you can gather valuable market data and unlock the accurate analysis needed to spot gaps and make the right decisions. The EDITED Retail Market Intelligence Suite uses artificial intelligence techniques to collect and analyze market data, giving industry players a comprehensive, real-time picture of the market. Overall, allowing your business to make quicker and more accurate decisions to stay ahead of the competition.
Reach out to a dedicated Retail Specialist today to learn more about how EDITED can help your business navigate these uncertain times.