According to the recent Bain & Company Luxury Study 2020 Spring Update study, the global personal luxury goods market is set to contract between 20 to 35 percent in 2020.
Bain finds that the market for personal luxury goods declined 25 percent in the first quarter of the year and is expected to continue to drop in the second quarter as much of the world was shut down during that time.
Optimistically, however, online retail sales of luxury items have stayed strong during the first part of the year. The consistency of ecommerce has made Bain bullish on the platform’s future in the vertical. Bain’s study expects online retail to make up as much as 30 percent of the industry by 2025.
As more economies open back up, new online opportunities and creative thinking will be essential for an industry rebound. Claudia D’Arpizio, partner, Bain and Company, and lead author of the study, finds that innovation will be vital to ensure a quicker recovery for luxury goods.
“There will be a recovery for the luxury market, but the industry will be profoundly transformed,” says D’Arpizio. “The coronavirus crisis will force the industry to think more creatively and innovate even faster to meet a host of new consumer demands and channel constraints.”
In some ways, the economic shutdown caused by the pandemic may accelerate some business opportunities retailers were already working towards in the industry. Luxury good brands faced a challenge even before COVID-19. Sales of products from Chanel or Tiffany and Co thrive on in-person retail environments where not only is the item a luxury, but so is the buying experience.
Some retailers such as Neiman Marcus - who filed for bankruptcy earlier this year - stuck to the luxury shopping paradigm even as consumers began shifting online. Others such as luxury consignment company, The RealReal, have leveraged the consignment market to reach new consumers online and in-person. The company has even reported increases in some luxury item sales during the pandemic. According to a report by the Financial Times, The RealReal has seen a sales uptick for luxury items like scarves and gold necklaces over the past two months.
Reports have already shown that many consumers are moving away from stockpiling essentials to purchasing entertainment goods. As some consumers are saving money by staying indoors, more affluent shoppers may look to spend their money on digital retail therapy.
It will be vital for luxury brands to continue to evolve to meet new consumer trends to capitalize on potential pent up demand post-pandemic. Luxury items will bounce back only if brands can be fast-acting and capitalize on the paradigm shift that was happening even post-pandemic.
“Winning brands will be the ones that best interpret the zeitgeist all while remaining consistent with their inner DNA and individual story,” adds D’Arpizio.