Commercial Awareness Insight: How COVID-19 is Revolutionising the Luxury Brand Industry
With the pandemic bringing a halt to the global economy for the past few months, the retail sector has been hit extortionately. More specifically, the luxury brand industry has faced intense hardship. The mix of lockdown measures, luxury brands’ dislike for discounts and online sales, and ensuing economic downturn, luxury brands must reconsider their strategies if they are to survive. Online search interest for luxury goods has hit its lowest rates since 2017, and the S&P Global Luxury Index (consisting of 80 of the largest global publicly traded luxury companies) also hit a three-year low. This article will consider the effect of these developments, how brands have responded so far, and where to go from here.
One interesting development from the pandemic is the effect on the Chinese luxury consumer market. Chinese consumers account for 40% of revenues last year, however two-thirds of Chinese luxury purchases are made overseas. These sales were predominantly undertaken by ‘Daigou’, meaning ‘buy on behalf’. These platforms utilised Chinese people visiting or living abroad to buy luxury goods from European and American boutiques to bring home to avid buyers. However, with lockdown implemented globally and travel across countries restricted, many of these individuals were stranded, unable to complete purchases.
Whilst this is hastening rollout of luxury stores to mainland China, physical markets such as Beijing SKP, the nation’s largest luxury mall, have experienced lower rates of footfall especially of wealthier consumers due to resurgence of the virus, leading to visits being halved compared to pre-pandemic levels.
This presents luxury brands with a problem. Having been hit hard by one of the largest consumer markets of luxury brands being locked down, brands have been hoping to hit the ground running post-lockdown. However, if consumers won’t interact with stores due to fear of resurgence, or perhaps increased desire of the popular Amazon-style online ordering model which luxury brands lack, how can the luxury market rebuild?
Technology seems to be the answer. China’s ‘live commerce’ boom has led to gross merchandise value more than tripling between 2018-2019, compared to China retail sales facing their slowest growth in thirty years, at 8% over the same period. Livestreaming allows brands to reach a wider range of audiences, not relying on geography but on connectivity. Zhu Liang, owner of Yanzu Culture (a digital marketing agency) explains the effectiveness of livestream advertisement: “a 30-second TV commercial or a full-page magazine advertisement isn't enough to tell you how the brand becomes what it is, a 30-minute live broadcast serves the purpose". There is something human about livestream advertisement which isn’t present in commercials; the ability to interact with the seller (theoretically) can improve sales.
Looking at statistics, this seems to be an effective sales method: 73% of China’s active livestream sales are to 20 to 40-year-olds, who accounted for 78% of luxury sales in 2018. Recently, luxury brand Tiffany requested for an online influencer to promote a $3,500 diamond necklace on her livestream – whilst this may sound strange at first, between this and two other livestreams, 300 Tiffany necklaces were sold in a broadcast viewed by 5000 people. Jo Sun, a Shanghai-based influencer, sells around 70 to 80 items worth RMB1m (equivalent to USD142,639,000) over three hours; compared to a top-performing luxury store in Shanghai, which can manage around RMB500k-700k (equivalent to USD71,355-99,897) in sales in a day, there seems to be an obvious advantage of virtual selling. Other brands have begun to follow: Louis Vuitton, Givenchy, and Chloe have subsequently been utilising livestreams in China, whilst virtual and AI-driven fashion shows have been circulating social media over lockdown.
However, this technology-driven, down-to-earth approach runs directly against the ethos of many luxury brands, who strive for exclusivity, and prestige which online sales can’t provide. YSL marketing management has proclaimed this explicitly: "We would rather lose money than cut prices to boost sales, discounts are detrimental to a brand's reputation". Alongside this, use of influencers creates difficulties in control customer data and may bring issues where unprofessionalism is found in livestreams. Whilst these concerns are real and potentially deal-breaking for luxury brands, it has been seen that many have allowed flexibility in the face of a pandemic.
Alongside this, COVID-19 has created a significant awareness in consumers of humanity and ethics. There is a greater need for brands to show their people as their priority, for example looking after their employees and customers. In March 2020, Hermes Group responded to this, announcing that it’ll maintain the basic salary of all employees globally. Alongside this, Gucci launched #GucciCommunity, an initiative "helping health services with equipment and powering the scientists who are working on vaccines and treatments", making two separate 1 million-euro donations to crowdfunding campaigns.
For the future, it seems that digital shopping will be more widely embraced, bringing hyper-personalised services and ever-more innovative forms of advertisement. Can the luxury brand industry resort back to pre-pandemic strategies in the following months, or will these digital forms of sales be utilised further?
