As the world may be poised on edge of the second stage of the Covid-19 outbreak, enough of a quo has formed that it is possible to take a look into the crystal ball and think about how the world of luxury retail has changed.
The overwhelming message is clear: rather than change the game the Covid-19 outbreak simply accelerated what was already coming.
For years now the luxury retail industry has been creeping towards to increasing sustainability as it came under pressure for being responsible for 10% of annual global carbon emissions . With brands being held to account for their supply chains, ensuring ethical and sustainable decisions are entrenched in systems is more important than ever.
The other significant shift which the pandemic has accelerated is a more noticeable embrace of technology. For years much of the industry has been slow on the uptake aside from a handful of leaders like Burberry . As physical presence can no longer be guaranteed, the industry can no longer afford to ignore the digital world. This is likely to endure both because the main hurdle with digitisation is putting systems in place, thereafter maintaining them is easier and because the first phase of lockdowns, sadly, may not be the only one. Digitisation also offers a chance to engage with an audience that would not usually have time to make it into stores, as well as audiences who struggle with mobility and cannot access stores.
Aside from the acceleration of supply chain review and enhanced digital access, other trends have been magnified in these pandemic times.
1. Seasonality. For a long time voices in industry have been talking about moving away from seasonality and moving towards making and selling clothes in season. Whilst the Covid-19 outbreak is not responsible for creating this macro trend it is responsible for accelerating it. Take for example Marc Jacobs who took the decision to halt production of his fall 2020 collection as a result of the Covid-19 outbreak . This will have knock on consequences throughout Marc Jacobs’ supply chain and on his staff. Whether the brand is able to exit or perhaps re-purpose their supplier contracts seamlessly or if they will have to endure ongoing costs is unclear. These are questions that any brand should consider as part of their Covid-19 strategy.
2. E-commerce versus the in-store experience. Prior to the pandemic, industry estimates suggested that 88% of luxury products were purchased in store. Of course, with stores shut the tables have turned causing brands with a weak online presence to suffer. Whilst physical stores will continue to be important as the world eases its way out of lockdown (read about measures brands are taking to keep their stores safe here) so will having a strong digital presence. The key issue for luxury brands is maintaining the personal element. To this end some brands have been using in store assistants with established customer relationships to host intimate live stream sessions. Choosing the right platform to host from is crucial: brands will need to consider both customer engagement and terms of service. Where the roles of existing employees are changing it will be necessary to consider whether that change is consistent with the relevant employee’s contract of employment.
3. Stores to look towards their domestic markets. As travel bans remain in force, consumers are stuck in place more than ever before. Spending potential is displaced as in normal circumstances roughly a third of global luxury sales come from travellers . This is particularly notable in China, as nationals are known to spend abroad; McKinsey estimates that purchases outside of the mainland accounted for over half of China’s luxury spending in 2018 . Brands should now being thinking about re-focussing on stores on the mainland to take advantage of this spending potential. This could involve leasing new properties, hiring new staff and re-routing products to the mainland.
4. Localisation. As supply chains across the globe have collapsed, a number of retailers will be thinking about localised sourcing. Brands can derive value from having products made locally as it adds to the heritage of a brand; think of Burberry’s Yorkshire trench coat factory . For some brands there will be a more direct financial incentive: the government-owned Development Bank of Japan plans to subsidise relocation costs of companies that bring production facilities back to the country . There is also the additional benefit of increasing transparency in a time that this is being demanded by consumers. Brands will want to consider how regulatory requirements change with such a geographical move.
5. Diversification. Conversely, localisation needn’t mean homogeneity. Diversification is crucial in order to isolate weaknesses in supply chains. Bigger brands have been able to weather much of the storm because they have access to a wide variety of channels and are therefore able to switch to one as another is compromised. Diversification also gives brands an opportunity to support a whole host of smaller businesses building their reputation as an ethical brand; take for example the #supportboutiques campaign .
6. Mergers and acquisitions. In order to support and embrace these ideas of diversification, localisation and digitisation quickly and effectively brands will need access to experts and supply chains. As smaller businesses are at risk because of cash flow issues, bigger businesses may be incentivised to snap them up to save the knowledge and brand value that these businesses have . Brands will want to ensure access to exclusive technologies to maintain their competitive edge and personal touch – what better way to do that than to own their own innovative technology business.
7. Sustainability. As consumers have less money to play with many are thinking about which brands reflect their own moral compass before investing. It seems that the Covid-19 outbreak has helped the luxury fashion industry to understand this: speaking to Naomi Campbell on her lockdown YouTube show “No Filter with Naomi”, Anna Wintour, editor of Vogue, emphasised that the industry is in agreement that “it’s not about needing to change, we have to change, we are going to change.”  Yet, with brands coming under fire for cancelling orders with an immense knock on effect in the supply chain, brands need to make sure that they demonstrate to consumers that cut-backs to the traditional two collections a year are not perceived as cynical but rather as a positive change: protection and enhancement of brand should not be overlooked.