This will be the luxury behind the effects of the coronavirus pandemic

One of the main thermometers of economic recovery is the luxury sector, which has already shown its muscle in previous crises with respect to other industries, such as finance or real estate. Between 2008 and 2009 its value decreased from 170,000 to 153,000 million Euros but it only took two years to recover its growth, reflects a report by Statista. However, reinvention in businesses that have only experienced prosperity is always more complex and, as Coco Chanel said, “luxury is a necessity that begins when the need ends”.

The premium section of Maslow’s pyramid – the theory that prioritizes human needs – has experienced sustained growth of high-end firms over the last 20 years based largely on the so-called “democratization”, which ended the more classic image of the “rich” client and in turn transformed the concept of “big money” or “very expensive” for the enjoyment of the experience, causing the middle class to save up to indulge in certain whims even if it was very occasional. Now, both priorities and perspective have changed and the effects of the pandemic and the confinement to control its spread are expected to be long. “Sales could fall by up to 35% this year,” predicts Bain & Company consulting firm, despite the push from China, one of the world’s largest buyers and producers (and 90% of the growth in the global luxury market by 2019). In Europe, the luxury industry already represents 4% of GDP. The European Alliance for Cultural and Creative Industries (Eccia) reflects that it contributes 800 billion euros annually and has employed more than two million people.

“2020 will be remembered as a before and after,” proclaimed Remo Ruffini, the CEO of the ski fashion firm Moncler. But there are reasons for optimism. Companies can emerge even stronger and more innovative. The value of shares in LVMH, France’s leading luxury conglomerate, and Kering, owned by millionaire François Pinault, have been rising since mid-March, while Hermès is trading slightly below where it was at the beginning of the year – remember that it had a turnover of 2.5 million on the day of its reopening in Canton, Guangdong province, China, published the fashion portal Women’s Wear Daily. “The worse things go, the more powerful the luxury is”, said Eduardo Irastorza, professor of EAE Business School, in his report X-ray of the new universe of luxury, supporting this thesis in the safe value of high-end pieces, such as gold jewelry, watches or art. “When there are economic problems, people tend to invest more in luxury because it is a safe sector and, therefore, it is the most effective way for the investment to have a return,” he justified in the aforementioned document.

Rising prices

Photo Masaau
Photo: Masaau

Perhaps that is why, together with the increased cost of raw materials due to the pandemic, being a holder of a luxury item will be even more so. Reuters reports that Chanel handbags and small leather goods will increase in price by 5-17%. This increase will apply to iconic pieces, like the 11.12, the 2.55 (which already reaches 2,000 euros in the second-hand market), and the Boy, Gabrielle and Chanel 19 models. In Korea there are already huge queues to acquire these collector’s bags before the escalation (in price) in full de-escalation (of confinement) becomes effective.

“Mainland China is driving nearly 100% of luxury sales,” defends Francesca Di Pasquantonio, managing director of capital research at Deutsche Bank, in a statement collected by Vogue Business, where she points out that the Chinese consumer will spend locally and supported by government tax incentives. Alibaba has announced that it will launch a luxury outlet platform to help brands with overstocking change the accumulated unsold inventory. Will this be the end of seasonality? The willingness to spend decreases in times of uncertainty even for those who have not seen their purchasing power diminished, and tourism for luxury goods and services purchases by tourists will continue to be disrupted by travel restrictions and a lingering fear of possible contagion from airplanes and cruise ships.

At the click of a button

The fashion shows will also live their new normality from the coronavirus. Anyone can now be part of the front rowtras a screen from their homes. The Camera Nazionale della Moda has announced the celebration of the men’s fashion week in Milan from 14 to 17 July on a digital platform through which the collections will be paraded, with much more interesting content such as webinars (live conferences), videos and interviews… The French Fédération de la Haute Couture et de la Mode will also do the same from July 9th to 13th. And in Spain, the last one to join is 080 Barcelona Fashion.

Fashion is creativity and dreams and perhaps that is why Yves Saint Laurent Beauty, belonging to the cosmetics and perfume division managed by the L’Oréal Group, has organised a virtual room through Zoom for 1,000 privileged visitors. Nearly 300 people gathered on the same platform, among which was Out of Series along with journalists and influencers from all corners of the planet, the celebrities’ make-up artist Charlotte Tilbury to present worldwide her new Magic Serum Crystal Elixir (72 euros, 30 ml) designed to moisturize the skin, illuminate it and define its contours. A new launch in the midst of a pandemic that has not been delayed or cancelled like other brands with their most anticipated products. Will Zoom be the substitute for press conferences?

Fall of the advertising investment

Advertising and communication agencies such as Globally Newlink Madrid and Omnicom Group are already asking their contacts for information in this regard. Meanwhile, those who live from advertising are already seeing the devastating effects of Covid-19. The sponsored content of influencers has fallen between 35% and 4%, publishes the study Status of influencers marketing 2020, from the marketing platform Launchmetrics, which reveals a reduction in post paid since the end of February and places these content creators in a more responsible and honest role with consumers. And there is the paradox that the media are doubling the number of hits on their digital newspapers while their revenues continue to fall. According to a report by Infoadex, 10.2% in the first quarter and 26% in the printed press.

On the opposite side are e-commerce, a possible solution to the drop in sales in physical stores. José Balaguer, CEO of the niche beauty website ikonsgallery.com has already analysed this increase. “91.9% of customers who have bought during the state of alarm are women and the majority age range is from 35 to 55 years old. The reasons for this increase are obvious. To the restrictions when going out to the street, the fear of going to an establishment, also to touch the products and to deal with more people, we have to add the fact that we spend a lot of time at home in front of the computer or with the mobile phone, so the consumer has more time to visit online stores and choose the products that interest him more calmly than usual. Google Analytics confirms this with its data, the bounce rate (people entering and leaving e-commerce quickly) has decreased considerably in this period of time,” the entrepreneur says.

Growth of online shops

Balaguer confesses to having modified the marketing strategy. “We have had to strengthen the discounts and promotions. For example, now we are giving away with all orders over 28 Euros, a hydro-alcoholic gel with aloe vera. These are details that people appreciate because now more than ever we have to pamper our clients. We have also bet on donations, in our case to Fesbal, a food bank that is helping a lot in this whole crisis”.

“There is still no way to measure whether the online growth will compensate for the decline in the points of sale because we still do not know how the response to the opening process of the sector will be. What we can predict, although everything is playing with the wand, is that the web channel will remain stronger because the consumer who did not buy before has now proven the advantages, so the sector is expanding”, completes Gerardo Peña, head of communication at Pure Skincare: Advanced Cosmetics. Their loyal customers to cosmetic firms such as Perricone MD or Medik8 are coming to the web to replenish their bedside products, he says, and that is expected to continue. “Communication is being fundamental to this. However, the luxury sector will lose some of the average consumer who might have indulged in a whim even if they did not have much money, because they will no longer be able to afford these goods. We know the damage that the coronavirus has already done but not the damage that will continue over time”.

Hopes for Christmas

Many partners and high-end brands confirm to FS not only their launches of the year but also their investments for the second half of the year, since the first quarter is lost and it is unknown how the consumer will behave in this progressive de-escalation that is already happening and will reach June. It will be crucial that in the coming weeks they can provide safety to customers, who will be critical of retailers and will ask for guarantees (gloves, masks, waiting line with safety distance, gel at the entrance, limited capacity…). “In the cosmetics sector, however, 40% of sales are made during the Christmas period, which runs from November to the Epiphany, and from Sephora we are maintaining investments in order to ensure an excellent campaign that will help us to overcome the losses of these weeks when we have had the points of sale closed”, explains Irma Ugarte, Marketing Director of the French perfume and cosmetics chain.

“Being the only global beauty retailer is allowing us to quickly learn from our colleagues in Asia and the United Arab Emirates, where we have long since reopened our doors and the commitment we made years ago to digitalization is a competitive advantage: it is allowing us to respond to the current needs of our consumers,” adds Irma Ugarte, whose team promotes hybrid purchasing methods such as Call & Collect, Click & Collect that allow customers to minimize in-store contact.

In the consumer’s mind

Overall, the sources consulted for this article believe that a more qualitative consumer will come out of this crisis, who will buy more rationally and bet on brands with a soul as well as on quality. In this sense, Louis Vuitton has reformed its workshops in France to adapt production and manufacture non-surgical gowns in a project involving more than 300 craftsmen. LVMH reports that hydroalcoholic gel is being manufactured in its facilities dedicated to perfumes and cosmetics. They have also used their distribution to acquire “10 million non-surgical masks, the operation is being distributed to obtain a total of 40 million that will be delivered to the French authorities,” explain company sources.

In the world of luxury fitness, trainers have also wanted to cover during this period in which they could not work that need of their users to want to train. “Sales of home-training materials skyrocketed in the wake of the pandemic and we know that established virtual training platforms increased their use by 20-30%. Our business model has been adjusted by adapting the training experience to ensure the protection of our partners while protecting the quality of our experience. These changes include reducing the capacity of each session to 50% and physically redesigning the interior of our studios,” reveals Elena Rogers, Marketing Operations Manager for Spain of the bootcampTRIB3, which has frozen the fees and membership of its partners at this stage of closure, “so the first phase of use in our studies will be for people with fees and packs. Naturally, this means that we will see a long-term impact”, adventure.

Made in Spain, special passport

Another consequence will be the focus on proximity. “A trend of support for national brands and local commerce is expected,” says Teresa de Lemus, Managing Director of Brand Finance Spain. The Osborne family company, in the hands of the fifth and sixth generations, says that although the online channel is still not very relevant in the wine sector, which practically lives off the restaurant trade, “it shows growth of more than 100% compared to the same period in 2019”. For its part, Cinco Jotas, a legendary brand with more than 140 years of experience that produces exclusive 100% Iberian acorn-fed ham, reveals that with the hotel and catering industry at a minimum and a very predictable fall in tourism in Spain, sales will fall sharply, but the Christmas campaign will be key for this national product, as it accounts for more than 50% of sales. “We hope that consumers will opt for giving away quality Spanish products and recover part of the losses. Additionally, in recent years our exports have grown considerably thanks to the recognition the product enjoys beyond our borders, generating additional demand which we hope will recover as soon as the situation in each country stabilises”, affirms Biljana Maksimovic, Global Marketing Director of Cinco Jotas.

“Luxury is directly related to unique products and shopping experiences at the point of sale. Without a doubt, there will be a more responsible, slower, less impulsive, higher quality, more sustainable and more eco friendly consumption. We may buy less but we will buy better, we will demand previous appointment and personalized attention,” predicts Daniel Yusty, owner of the luxury multi-brand within the 41st District of Madrid, in the golden mile. Despite an uncertain future, what is clear for all brands is that this crisis will bring lessons in the form of changes. Returning to the master Coco Chanel, “you succeed with what you learn”.

Author: Cristina Galafate, Expansión