In their latest report Bain & C° takes a deeper look into the effects of the COVID-19 pandemic on the luxury segment. A few key take-aways;
- The luxury market is obviously highly impacted by the effects of this crisis, first in China – representing 90% of the segment’s growth, and as the pandemic spread, throughout the entire world. While Bain cautions that due to the speed at which the situation continues to evolve it is difficult to make predictions, they forecast a 25% tot 30% market contraction in the first quarter of this year.
- Key factors causing this contraction are the lockdown in key consumer markets such as China – equaling 35% of the global personal luxury goods market – travel restrictions – cutting of tourism retail – and last but not least, a fast deteriorating economic situation – which will hit consumer spending ability.
- The report adds that unlike previous crises (2003, 2008), where a global downfall in the luxury segment was partially recovered by continued spending in China, the Chinese market will unlikely make up for the losses this time around. The fear factor has a more severe impact on the financial markets, Bain says, and continued travel restrictions in various parts of the world will cause tourism to remain flat much longer.
- In the most optimal scenario, the report continues, demand recovery could limit the market contraction to 15-18% for the year. The second scenario, a contraction of 22-25% predicts the luxury segment will remain in negative territory throughout 2020. Finally, in the last scenario, the market will fall between 30 and 35%.
- Recovery of the market will take two shapes; for the Asian markets, Bain expects a rapid rebound, while in Europe and the America’s the report expects a further dip followed by stabilization.
The report continues with a number consumer trends that will play a significant role in the future:
- China is emerging from the crisis first, and there will be more spending in China.
- Consumers’ acquired digital shopping appetite will (partially) stick, especially for brands that innovate in this field
- Ethical, social and environmental responsibility have become even more important from consumers’ perspective and thus, for brands.
For companies to gear up during and after the COVID-19 pandemic, Bain has three recommendations. First it is crucial to implement a new leadership framework, that addresses priorities, mainly safeguarding and supporting public health through clear and updated information. Secondly, companies would do well to focus on short-term financial, operational and brand strength. This means staying connected with consumers through relevant content, investing in innovative, digital tools, and scrutinising expenditure rigorously. Lastly, the COVID-19 pandemic is accelerating a trend that already urged brands to rethink their strategies, to become more focused on consumers, more digital, agile and sustainable. Re-evaluating how they approach customers, attract employees, organise supply chains in an omnichannel environment is more relevant than ever.
Bain concludes, that while the crisis is unprecedented in every sense of the word, it could transform the luxury industry for the better, emerging stronger from the crisis.