Business

Miss Rona: A Trendsetter?

COVID-19 is Changing the Landscape of Luxury Fashion
Miss Rona: A Trendsetter?

The global health crisis has taken a toll on numerous industries, particularly healthcare, education, and transportation. However, large waves are also being felt in the luxury fashion industry. Admittedly, it seems a bit secondary to be concerned with luxury, given many find themselves cash-strapped during this time. But as is known by now, no industry is immune to the ramifications of the virus. The pandemic has generated monumental shifts in how luxury goods companies operate and urges them to adapt or else risk going out of fashion–literally.

A major concern for luxury companies arises from the fact that a large part of their success comes from the in-person relationships and experiences they build with their clientele. As the virus has rendered it impossible for companies to continue lavishing customers in-store, it comes as no surprise that revenues have significantly dropped. Top management consulting firm, Bain & Company forecasted sales for luxury goods this year to drop between 20% and 35% from 2019’s figure of $316 billion [1]. While fast fashion retailers can easily translate brick-and-mortar sales to an online storefront, high-end companies face more hurdles. In 2019, Inditex, one of the largest fashion retailers including Zara, Bershka, and Massimo Dutti, reported that 14% of sales that year were made online, and estimates this number to grow beyond 25% by 2022 [2]. This is a far cry from the 4% that luxury brands rake in [3]. The pandemic has highlighted the importance of leveraging online channels, especially when store doors are locked. To recoup some of the lost in-store revenue, companies need to open their online floodgates. Fashion houses including Chanel and Dior have remained adamant in withholding from selling online, and even more designers keep from joining online luxury goods marketplaces such as Net-a-Porter and Farfetch, despite them being high traffic avenues for shoppers. For those companies hosting sales on their own site, figuring out what the intimate in-person customer experience looks like reduced to an online form will be imperative for customer retention. Retailers stocking high-end brands including Saks Fifth Avenue and Neiman Marcus have already been forced to discount their online inventory and start the sale season early to get rid of inventory [3].3

Luxury conglomerates are also getting their own sale season, as fashion houses have seen their valuations decline upwards of 25% [4]. This makes them prime acquisition targets for holding companies, namely LVMH, Kering, and Richemont, who seek to consolidate the luxury market. The balance sheets for companies like Tiffany & Co. and Burberry still remain under good health, but weakened consumer confidence has made takeovers more attractive. LVMH and Tiffany & Co. previously agreed to a $16.2 billion deal in November of 2019, the largest ever made in the luxury sector.4 Now seeing the effects of COVID-19 in equity markets, LVMH CEO and majority controlling shareholder, Bernard Arnault, has good reason to revisit the deal. Tiffany & Co. shares currently trade at a discount to the agreed price when the deal was initially struck, and the French behemoth is anticipating a potential breach of debt covenants which would provide a sufficient case to renegotiate the acquisition price [5]. Moreover, family-controlled companies including Chopard, Prada, and Chanel, who have been previously near impossible to acquire, may be under enough turbulence during this unprecedented time to push them into selling [4].4 Inventory buildup resulting from the combination of unretracted orders from suppliers, falling demand, and a refusal to discount merchandise, is sure to materialize negatively on financial statements. 

As stores begin a conservative reopening with precautions still in place, luxury retailers must renew the luxury shopping experience. With social distancing mandates and the fear of catching the virus still lingering, stores need to adjust how they interact and connect with their shoppers. By-appointment shopping has long been an option for luxury clients, but perhaps retailers should now implement it as the only way to shop. The benefit is twofold: the risk of spread is limited, and companies can take advantage of a one-on-one shopping experience to rekindle the client and sales associate relationship that took a hit during the pandemic. An emphasis on personalizing the shopping experience can also help bolster the bottom line; Shopify found that 40% of American consumers paid more than they intended for items because of a customized experience, and that 86% of consumers are influenced by personalization when making purchasing decisions [6]. 

In spite of the rebound for stores gradually reopening, tourism lags far behind, meaning threatened store traffic, especially for tourist hotspots and fashion capitals in North America and Europe. The luxury goods market is dominated by Chinese consumers who are responsible for a third of the world’s total consumption [7]. However, 24% of this consumption is made outside of mainland China, with shoppers preferring to travel to foreign countries to take advantage of lower prices [7].7 With air travel at a standstill, even the most popular destinations for luxury shopping like New York’s Fifth Avenue, Beverly Hills’ Rodeo Drive, Milan’s Via Montenapoleone, and Paris’ Rue Saint-Honoré will be seeing quieter days ahead.   

"As stores begin a conservative reopening with precautions still in place, luxury retailers must renew the luxury shopping experience."

Looking even further into the future, fashion weeks and the series of haute couture, menswear, resort, and bridal shows will need to be redesigned to comply with social distancing regulations. The calendar, which is known for bringing the international fashion community to New York, London, Milan, and Paris to view crowded showrooms, gather on runways, and socialize in close proximity, lends itself nicely to proliferating an incredibly contagious virus. Some menswear and couture shows set to take place in the summer months have been postponed, and for those that cannot wait, creative videos published to online platforms will be in lieu of in-person shows [8]. Virtual and augmented reality have also been proposed as new ways for brands to connect with their audience. New challenges are created when it comes to pitching to buyers who have found comfort in jet-setting to physical showrooms and booking appointments to meet designers face-to-face in order to make their buying decisions. In a digital fashion world, companies must imitate the real experience as closely as possible via high quality videos and images, 3D imaging, and even avatars [9]. Only then can they hope to maintain strong relationships with their buyers. Another challenge of virtualizing fashion week is that it takes the power away from influencers to, well, influence. Making partnership appearances at shows, posing for street style photographs, and broadcasting their fashion week journey on their closely and highly followed social media accounts all play a huge role in driving consumption for these luxury houses. In research conducted by Mediakix, 48% of marketers observed influencer marketing to have a greater return on investment than other marketing channels [10]. And, 76% of luxury brands admitted noticeable sales growth owed to influencer partnerships [11]. If brands and their influencers cannot find a way to preserve lucrative engagement with their followers, companies will suffer heavy losses. 

Permanent changes have also emerged as a result of the pandemic. It has highlighted weaknesses in supply chains and afforded a convenient transition to presenting collections more sustainably. Particularly, the importance of diversifying suppliers and manufacturers has come to light in the wake of nationwide shutdowns. Italy, one of the hardest hit countries by the virus, is responsible for over 40% of the world’s production of luxury goods [12]. A prolonged pause of activity in the country would compromise the ability of those brands sourcing from Italy to fulfill orders. As well, fashion houses like Saint Laurent, Armani, and Gucci are stepping back from showing their collections during the long-held fashion calendar, opting instead for a seasonless approach [8].8 Free from the calendar’s constraints, Gucci has committed to reducing its number of collections, perhaps flicking the switch on the fashion industry to leave its wasteful and gluttonous days in the past. Abandoning the overkill cyclicity of new trends that encourages overconsumption and reducing the negative externalities of travel will promote a healthier fashion ecosystem post-pandemic. 


For now, the luxury fashion market has managed to weather the storm of COVID-19 and the initial dark skies appear to be clearing. On a surface level, the pandemic has presented itself as nothing but bad, yet there is always a silver lining. While it has caused a lot of grief and strife, it has also challenged the world to innovate and deviate from the status quo. While the search for a vaccine to combat the virus continues, the remedy for the luxury fashion industry seems to be this: invest in ecommerce, take advantage of M&A activity, revamp the ways to fortify relationships with clients and influencers, and give a facelift to runway shows and supply chains. Whether companies emerge stronger than before and equipped to tackle future obstacles depends on their actions now. It is survival of the fittest, so companies better mask-up and get to work.

References:

[1] Choudhury, Saheli Roy. “Global Luxury Sales Could Collapse up to 60% in the Second Quarter, Consulting Firm Says.” CNBC, CNBC, 8 May 2020, www.cnbc.com/2020/05/08/coroanvirus-bain-report-on-global-luxury-sales-for-2020-and-beyond.html. 

[2] Jolly, Jasper. “Zara Owner to Close up to 1,200 Fashion Stores around the World.” The Guardian, Guardian News and Media, 10 June 2020, www.theguardian.com/business/2020/jun/10/zara-owner-to-close-up-to-1200-fashion-stores-around-the-world. 

[3] PYMNTS. “Luxury Brands Hit The Discount Racks.” PYMNTS.com, PYMNTS.com, 17 Mar. 2020, www.pymnts.com/news/retail/2020/luxury-brands-hit-the-discount-racks/.

[4] Guilbault, Laure. “Luxury M&A Activity Could Pick up Post-Crisis.” Vogue Business, Vogue Business, 6 Apr. 2020, www.voguebusiness.com/companies/luxury-m-and-a-activity-could-pick-up-post-crisis. 

[5] Roumeliotis, Greg. “LVMH Refrains from Renegotiating Tiffany Deal, Sources Say.” Yahoo! Finance, Yahoo!, 5 June 2020, finance.yahoo.com/news/lvmh-backs-down-renegotiating-tiffany-150544144.html. 

[6] Voidonicolas, Roxanne. “Personalization in Retail: How to Make the In-Store Experience Unique.” Shopify, 15 Jan. 2020, www.shopify.ca/retail/personalization-in-retail.

[7] Zhang, Hannah. “Luxury Retailers Suffer as Chinese Tourists Are Subject to Travel Bans.” CNN, Cable News Network, 5 Mar. 2020, www.cnn.com/2020/03/05/business/luxury-brands-suffer-from-travel-bans/index.html. 

[8] De Klerk, Amy. “All the Fashion-Week Schedule Changes That Have Been Announced so Far.” Harper's BAZAAR, Harper's BAZAAR, 7 May 2020, www.harpersbazaar.com/uk/fashion/fashion-news/a32398585/2020-fashion-week-schedule/. 

[9] Biondi, Annachiara. “What Buyers Want from Digital Showrooms.” Vogue Business, Vogue Business, 27 Apr. 2020, www.voguebusiness.com/consumers/what-buyers-want-digital-showrooms-joor-ontimeshow. 

[10] Bailis, Rochelle. “The State of Influencer Marketing: 10 Influencer Marketing Statistics to Inform Where You Invest.” Big Commerce, 24 Jan. 2020, www.bigcommerce.com/blog/influencer-marketing-statistics/. 

[11] Cammareri, Izzy. “How Influencer Marketing Pays-Off For Luxury.” ORDRE, 10 May 2019, www.ordre.com/en/news/how-influencer-marketing-paysoff-for-luxury-1194. 
[12] Achille, Antonio, and Daniel Zipser. “A Perspective for the Luxury-Goods Industry during–and after–Coronavirus.” McKinsey & Company, McKinsey & Company, 1 Apr. 2020, www.mckinsey.com/industries/retail/our-insights/a-perspective-for-the-luxury-goods-industry-during-and-after-coronavirus. 

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