The coronavirus pandemic has forced luxury retailers to reset, reshape and stabilise their marketing capacities to survive the ongoing crisis. Health and safety concerns have meanwhile also pushed the global luxury retail industry to accelerate digitization. In China, luxury retailers passed the peak of the coronavirus outbreak and elevated resiliency into their planning. They have also worked fast to implement a more suitable digital model. The lockdown saw a 700 percent year-on-year increase in live streaming activity on Chinese e-commerce website Taobao, US-based management consulting firm McKinsey & Company said in a report. After the lockdown ended, China experienced "revenge buying," such as a $2.7 million spike in sales at the Hermès flagship store in Guangzhou. The phenomenon occurred as many customers shopped based on emotion to reward themselves after the months-long lockdown. Luxury merchants also believe e-commerce channels are likely to give them a boost and they are now looking for ways to digitalise in a cost-efficient manner to survive the global trade disruption.
Adapting to the new normal, Alibaba Group, Farfetch and Richemont recently announced a global strategic partnership to launch luxury shopping channels with enhanced access to the Chinese market. The visionary Luxury New Retail initiative aims to become a leader in the digitisation of the global luxury retail industry. The rest of the global luxury industry started to pursue ways to have a meaningful digital presence and shopping experience when the pandemic supercharged all things digital and virtual.
Some large luxury brands are investing in more serious technological innovations that could force their competitors to take note. This has seen luxury brands such as Louis Vuitton and Gucci not only increase their focus on digital channels but also virtual "try-before-you-buy" experiences as part of AI-based innovations. Jewellery brand Kendra Scott also enabled customers to virtually try on earrings and make purchases.
Looking at the impact of the pandemic on the luxury retail industry, the sudden changes experienced in 2020 had very drastic results in several ways. According to the McKinsey report, up to 30 percent of industry revenues are generated from consumers making luxury purchases in foreign countries. Sales of luxury goods dropped by up to 70 percent year-on-year at the start of the pandemic.
And the health crisis continues to affect global luxury sales, which are projected to be 35 percent lower this year, according to a study by global management consultancy Bain & Company. This uncertain time has seen the luxury retail industry relive previous sluggish years. This is in part ascribed to a carelessness among many industry players in developing their digital marketing channels and relying too heavily on brick-and-mortar stores over the past few years. Alex Bolen, chief executive of Oscar de la Renta, told Vogue that the way consumers shop now has changed and traditional luxury businesses have not met these consumers' online shopping needs. As physical stores became less practical due to the lockdowns, luxury retailers were forced to realize that scaling up their digital capabilities was inevitable.
But it is never an easy errand for luxury brands to give up their exclusivity in high-quality services, sales streams and outlets. Their products must at least maintain an air of exclusivity to convey the novel tastes and status of their customers. Some luxury brands, such as Chanel, are known for having refused to sell their products online for years for the sake of exclusivity. But the crisis has forced them to meet the desires of their digitally conscious consumers to survive.
Changing customer behaviour
Luxury retailers have become even more vulnerable as most of their customers reprioritized their spending amid uncertainty over the duration and severity of the pandemic, according to research by the Global Luxury Expert Network in mid-May this year.
The economic uncertainty has made consumers more price-conscious, and luxury retailers must adjust to this to still get people to buy their products. This shift in customer behaviour is behind a new approach in the luxury retail industry to consider longer-term innovation and investment in various aspects of digitalisation, including payments. Adding new payment methods can help luxury retailers stay ahead of the competition and resolve many of the difficulties encountered in making transactions across national borders.
Cooper Watts, director of information technology and e-commerce at OAK + FORT, said offering a new payment option in the US has helped the British Columbia-based luxury clothing and accessories retailer to boost its sales. Facilitating customers to spend thousands of dollars with the right technologies has now become a priority for the luxury retail industry, and the coronavirus only accelerated this trend. Marco Bizzarri, president and chief executive of Gucci, told Women's Wear Daily that luxury retailers will continue to evolve in response to the increasing digital shift. The industry is now expected to not only reshape sustainable business but also relentlessly create novelty.