New Crown Outbreak Or Trigger A New Round Of Changes In The Luxury Industry

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In comparison with other retail sectors, the luxury industry has been more deeply affected by the impact of the Covid-19. The outbreak started in China, and Chinese consumers have been the largest growth engine in the global luxury market, contributing 90% of the global luxury market growth in 2019. Then the epidemic spread to Italy, the location of many luxury brands and their suppliers. Today, Europe and the Americas are all affected by epidemics, and the whole world is in a pandemic.

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The decline in GDP, the increase in the unemployment rate and the resulting decline in consumption capacity have led to significant pressure on the financial market and the resulting decrease in consumer confidence and willingness to consume. Moreover, global travel restrictions and continuing concerns about the possibility of catching a new crown virus by flying aircraft and cruise ships will continue to affect travel related elimination. Fees, these negative factors will have a huge impact on the luxury industry.

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Under the impact of the global major luxury market, brands are also adopting a series of measures, including shutting down shop workers, to protect the interests of employees and customers and, where possible, to assist front-line public health in coping with crises, for example, by using their factories to produce basic products, such as hand sanitizers or protective clothing.

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The report also points out that through the new management framework, actions can be taken to maximize short-term financial capacity, operation and brand value, change brand value proposition and business model foresight, brand can alleviate the threat of epidemic and accelerate recovery, brand can also find new opportunities from the crisis, become stronger, more innovative and more resilient.

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The new crown threat poses a threat to the world's major consumer markets.

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The bain report pointed out that after the unusual positive start in January, the performance of the global market in the first quarter of 2020 was closely related to the spread of the new crown virus: Asian sales fell sharply, while China was at the forefront of the negative trend. Almost every luxury brand in China has to temporarily close its stores or reduce working hours, resulting in a two digit decline. It is worth mentioning that with the resumption of reopening and re opening of stores, China's market recovery is faster than expected.

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The new crown has double effects on luxury consumption in Japan and Korea and other Asian countries. On the one hand, it has prevented Chinese tourists from consuming, and on the other hand, has damaged the confidence of local consumers. The same double effects spread to Europe, especially in Italy, and the European market performed well in the early 2020. But with the loss of consumer desire and the impeding effect of tourism consumption, the market trend has rapidly changed to negative.

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The luxury market in America also gradually felt the impact of the new crown epidemic: most luxury brands began to close the US stores. In the first two and a half months of this year, the decline in the consumption of Chinese tourists did not seem to have a huge impact on the market. The positive trend seen in most of the first quarter is now under tremendous pressure.

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The third forecast of 2020 and six consumption trends

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Since twenty-first Century, the luxury industry has suffered many crises, but it has all passed smoothly. In the period of 2002~2003 SARS, China's consumer market was hit hard, but at that time, the luxury market did not rely too much on China. After the outbreak of the global financial crisis in, the demand for western consumer market declined sharply. The middle class and the wealthy class began to rise and became the biggest growth power of the luxury consumer market, until now.

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It is this dependence that makes the impact of the Covid-19 on the luxury market uncertain. In the Chinese market, due to the sharp decline in luxury consumption demand caused by the outbreak, other markets in the world do not have enough new luxury customer groups to excavate. Moreover, the "fear factor" of the epidemic is bigger than the past crisis and has a more lasting impact on the global financial market and consumer confidence. Finally, as countries restrict travel to prevent further outbreaks, and some people still feel uneasy about planes and ships, tourism consumption will take longer to recover.

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Based on the potential outcome of the epidemic, duration and intensity of the outbreak, as well as GDP expectations, consumer confidence and other macroeconomic indicators in various major markets around the world, Bain gave a third forecast of the possible performance of the global luxury market in 2020 (compared to 2019):

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The first forecast is to assume that market demand will gradually pick up in the second half of the year, thereby limiting the overall market contraction in 2020 to 15%~18%.

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The second gear predicts that the market will decline 22%~25% until the fourth quarter will maintain negative growth.

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The third forecast predicts that the market will fall between 30% and 35% due to the sluggish sales in the longer term.

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Under these three scenarios, the drop in profits will be greater than the decline in sales.

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Bain predicts that by 2021, the Covid-19 will still have an impact on the luxury market, some of which may experience a rapid rebound, while others will see more "decline and balance". Among them, China and the Asian market will probably experience the strongest recovery. Japan, Europe and America may be affected for a longer time, depending on the development of the real economy. In addition, the mid term growth of the global luxury industry will be affected by the consumption intention of the Chinese middle class, the growth of luxury demand of the millennial generation and Z generation of young people, and the acceptance of digital channels by consumers.

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In addition, Bain sees six consumer trends emerging:

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China's domestic consumption will recover strongly: if the epidemic continues to be controlled in China, the global market for luxury goods is likely to resume from China, and continuous travel restrictions will mean that many purchases that should have been abroad will take place in China.

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The acceleration of digital transformation of brands: in the future, consumers will return to physical stores when public health and safety are guaranteed, but some of the digital shopping habits established during the outbreak will continue to exist. This trend will be especially beneficial to those who successfully launch digital marketing during the epidemic and enhance the online experience of consumers.

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Consumers' environmental protection and social awareness are strengthened: after the outbreak, consumers will continue to pay attention to sustainability and social problems, and environment-friendly brands will get more support. Enlightened brands may reconsider product life cycle, supply chain management and inventory disposal.

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The moral sense of brand is more and more concerned. As consumers first consider environment-friendly brands and socially responsible brands, the moral attributes of brand presentation will be concerned like their aesthetic attributes.

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Brands need to be more sensitive in global expansion: public opinion sometimes stigmatized some countries during the outbreak, and brands need to be more sensitive to local propaganda and avoid irritating consumers.

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Brand needs to adapt to changes in consumer spending: after the outbreak, many consumers' consumption intention and consumption ability will be affected, especially for middle class customers, the brand can adjust the price timely to adapt to the consumption ability of consumers in different regions.

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The new crown epidemic will trigger a new round of changes in the luxury industry.

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The luxury industry is one of the most globalized industries on the planet. Over the past twenty years, the growth engine of luxury goods has been changing. It is these growth engines that have made the luxury industry and brand more and more high, and the most striking thing is the rise of Chinese consumers.

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The Covid-19 will eventually pass. When the situation is stable, the global influence of luxury goods will once again become an advantage. Some brands can even stand out from the crisis. The lessons learned in the dark days of 2020 can promote the sustainable development of brands in 2021 and beyond. The crisis may have a huge negative impact on the luxury sector in the near future, but it may also lead to a new round of changes in the luxury industry and reshape the luxury sector.