The retail sector as a whole has been severely impacted by the coronavirus pandemic. But what about the fate of luxury retailers?
With even higher rents and with arguably less traction online than mass-market retailers, the luxury sector is also facing some unprecedented challenges.
Brick-and-mortar closures hit brands hard
Luxury retailers have traditionally relied on brick-and-mortar stores to drive sales. These stores and showrooms offer customers a high-end experience to align with brands’ prestige (and price tag). However, with these stores often located in the most expensive areas for real estate – such as London’s Mayfair or New York’s Fifth Avenue – rent is now becoming a problem for retailers who were forced to shut down during lockdown. As a result, some are now trying to get out of expensive leasing contracts.
Last month, Valentino filed a lawsuit against its landlords in an attempt to exit its Fifth Avenue lease – nine years earlier than originally agreed. Valentino claims its premises has been rendered impractical and no longer workable, blaming: “the current social and economic climate, filled with COVID-19-related restrictions, social distancing measures, a lack of consumer confidence and a prevailing fear of patronizing, in-person, “non-essential” luxury retail boutiques.”
Ultimately, the luxury high touch experience it previously offered, based around customers interacting with products in real life, simply isn’t possible and won’t be for the foreseeable future – and this is the case for most other luxury retailers, too. Even if customers start to return, the lack of tourism will still leave a big dent in sales, particularly from Chinese consumers who travel specifically to the US and UK to shop. A significant decline in general travel also means a big impact on luxury retailers located in airports; according to the World Tourism Organisation, there will be as many as 1.1 billion fewer international travellers in 2020 than there were last year. Finally, there is the lack of footfall from people now working from home instead of city locations, though the return to restaurants, cinemas, and eventually theatres could give retailers a boost.
Luxury retail brands are now in what Boston Consulting Group has described as a protracted ‘fight’ phase of a predicted three-phase recovery from the Covid-19 crisis. For some, there has been no way back; department store Neiman Marcus filed for bankruptcy last month. For others, this phase means that, while retailers are re-opening, the road ahead remains uncertain because of the potential for the virus to reemerge. According to BCG, even the most optimistic forecasts predict 2020 luxury retail sales will fall 25% to 45% on 2019.
Consequently, luxury retailers are trying to save where they can, which translates to extensive job losses. Recently, Burberry revealed that it plans to make 500 job cuts after its comparable retail sales fell 45% in the three months to June 27th. Similarly, Harrods has announced that 14% of its workforce will be made redundant, and Harvey Nichols has also warned of job cuts.
Difficulties with ecommerce
Much like the rest of the retail sector, Covid-19 has seen luxury retailers shift their focus to ecommerce. However, the sector is considered to be a step behind mass-market retailers in this area, with some still not releasing their full collections online. This is typically considered to be a strategy by brands to maintain a sense of ‘exclusivity’, as well as a way to lure shoppers into stores in order to buy more expensive items (while ready to wear collections, which are less expensive, can be bought online). Of course, it’s also the case that luxury shoppers are not as comfortable with purchasing luxury items online as they are in store. This has improved over time however, with Bain predicting that ecommerce will account for 30% of the luxury goods market by 2025.
In the current climate, some luxury retailers are still on the back foot when it comes to ecommerce. It’s not necessarily that digital operations don’t exist, but rather that the user experience is not aligned with the experience offered in store. At the same time, luxury brands face stiff competition from multi-brand high-end ecommerce sites such as Net-A-Porter, which has revolutionised the way people think of and buy luxury fashion. Personalisation and customer service has been integral to Net-A-Porter’s success, with the brand focusing on areas such as product curation and convenience to generate engagement and loyalty in consumers.
INTRODUCING OUR NEW PRE-ORDER SERVICE: You have the opportunity to pre-order FW20's most-wanted runway pieces before anyone else. Shop & pre-order here –> https://t.co/yArjNgtnyl pic.twitter.com/hCup5bj2F1
— NET-A-PORTER (@NETAPORTER) July 17, 2020
Looking forward, it’s likely that these elements will come to the forefront for luxury brands, as well as digital services that serve to enhance the in-store experience (such as appointment bookings or virtual personal shoppers).
Luxury brands with a history of ecommerce investment are proof of its value, with Burberry being one such example. Despite overall losses, its investment has helped to encourage the shift in consumer behaviour; Burberry recently stated that its digital channels became the primary channel for luxury purchases following store closures in the first quarter of 2020. What’s more, its 2019 annual report revealed that “digital was the fastest-growing luxury sales channel in 2019, growing 22% versus previous year and representing 12% of all luxury sales.”
Adapting to new consumer needs
With consumers forced to stay at home for the majority of the year so far, there’s been lower demand for some luxury items (such as bags, dresses, and suits), and greater need for items related to comfort or sporting activity, such as lounge and gymwear. As a result, we’ve seen luxury retailers adapt both product and marketing to fit this shift in demand.
Dior, for example, recently partnered with Nike to create a selection of ready-to-wear sports clothing for Autumn 2020, inspired by NBA champion Michael Jordan. As well as capitalising on the recent popularity of the Netflix documentary, The Last Dance, the collection capitalises on the new consumer desire for both comfort and fashionable sportswear. The launch of Dior’s limited-edition Air Jordan sneakers was also designed to generate online engagement, with customers only able to get their hands on a pair on a first-come-first-serve basis via a special microsite.
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Drawing on both the Dior and @Jumpman23 heritage, the #DiorJordan collaboration designed by @MrKimJones represents a fusion of basketball culture and sartorial sophistication. It offers a whole new upscale take on the 'Air Jordan' infused today with an unprecedented Dior identity. Also featuring the line's signature logo, four leather goods pieces – including a pouch and wallet – as well as bucket hats, necklaces and jacquard ties, serve to complement the must-have looks discoverable now in select Dior boutiques and pop-up stores. © @Alfredo_Piola
Elsewhere, we’re also seeing luxury retail brands quickly develop their own version of the newest must-have accessory for 2020 – the face mask. While some brands have been criticised for appearing to capitalise on the global pandemic, it’s also the case that fashion brands are in a position to positively promote the wearing of masks, and to increase general awareness about the importance of doing so. Just like any other accessory, of course, some consumers might choose to buy luxury for enhanced comfort or simply for the brand name. Regardless, it is up to brands to ensure they do not sacrifice functionality for fashion.
The coronavirus pandemic has exposed the luxury sector’s reliance on brick-and-mortar retail, leading to uncertainty for even the biggest and most well-known luxury designers.
Until both tourism and local footfall returns, if indeed it does in the near future, it will be up to these brands to find ways to adapt and deliver the customer experience that previously drew in customers, using digital technology to do so both online and in-store.
See Econsultancy’s retail hub for more on the impact of coronavirus.