This month, COVID-19 restrictions saw the fashion world’s influential autumn shows in London, Paris, Milan and New York step out with a fresh mix of online and live events and installations. Many luxury brands opted for a digital-first approach to their seasonal collections—some without any form of physical show—while others, such as Saint Laurent, skipped the 2020 Fashion Week runways entirely, to “lead their own rhythm.”
This new approach encapsulates the many functional and financial considerations facing the luxury sector. The market is braced for its first annual contraction in 20 years, after prolonged and robust growth. In the UK, Europe, and US, demand for luxury products remains low—driven by the COVID-19 socioeconomic context—and certainly when compared with 2019. The loss of Chinese custom, in particular, linked with the drop in international travel and tourism, has played a significant part.
But the pandemic has also fuelled a fast rise in e-commerce within the luxury goods trade. For an industry traditionally centered on an exclusive, bricks and mortar brand experience, the growing appetite for digital sales presents new complexities, as well as opportunities, linked with managing an omnichannel retail business.
Once considered more resilient than most, the luxury sector is now in the uncomfortable and unfamiliar position of having to rethink its operations with economic uncertainty and vulnerabilities in the supply chain, coupled with the need to make consumer propositions "COVID-safe", yet still compelling. For many luxury companies, the next 12-to-18 months could make or break.
For consumers, the pandemic has seen an increasing demand for luxury brands to not just fly the flag for sustainability and ethics, but to show their credentials in their goods and practices. Customers are more able to afford the right product and care for it as a long-term investment. Yet with the economic downturn driving a reduction in disposable incomes, consumers are likely to be more selective with purchases – choosing quality over quantity, with a higher regard for ethical and environmental footprints and craftsmanship built to last.
As a result, luxury brands are having to review their propositions and the strength of their environmental, social, and governance positions. A number are exploring new models, offerings, and partnerships both with other brands and with individual influencers, in order to remain relevant at a time when luxury purchases might feel too frivolous. This has seen a big push by the sector into the resale, rent, and repair space—a market with a projected value of US $64bn that is expected to grow five-fold in five years. Selfridges, for example, has joined forces with Oxfam for its Second Hand September campaign.
Luxury fashion rental went mainstream in 2020, from watches and jewelry to handbags and even children’s clothes. And repairs are in vogue, from Alexander McQueen designer Caroline Smithson’s workshops to new ‘style platforms’ such as Better upcycling old items, and The Restory’s luxury aftercare service.
However, there are also the practicalities of direct engagement with luxury consumers to navigate. Either through digitization, "by appointment", by crafting new, exclusive experiences, or by feeding customer buy-in, brands will have to weigh up where to invest. And they may have to become more creative in the process—as Jacquemus has by hosting an outdoor catwalk in a wheat field outside of Paris.
Luxury consolidation—pause, then accelerate?
Pre-pandemic, the sector witnessed meaningful moves towards consolidation driven by large conglomerates such as LVMH and Kering. As a sea-change for an industry built first and foremost on family businesses, such acquisitions regularly attracted enormous valuations and eye-watering multiples.
Today’s volatile economic climate has however placed major sales—such as LVMH’s anticipated purchase of Tiffany & Co—on pause, as those with healthy balance sheets hold out for a bargain on struggling icons. For mergers and acquisitions to resume and accelerate, the market will require the return of solid valuations based on greater economic stability and transparency.
Currently, independents are anxious about the vulnerability of existing value chains centered around a select number of suppliers in order to maintain product control. With many fashion houses having built models around regional artisans and producers, the risk to their operation should a localized crisis hit, is painfully clear. What’s more, if volumes remain modest over the next six to twelve months, concerns over supplier and vendor bankruptcies may well play out.
Cutting the cloth
To build and grow a business that will endure COVID-19 and beyond, luxury brands are fundamentally reviewing their operations. Many are, for the first time, taking a zero-based approach to cost structures, supply chain, operations and direct customer relationships and making some very difficult decisions about what they can afford. Some have already closed stores, reduced staff, or reconfigured their wholesale businesses.
In this unfamiliar commercial territory, there is a fresh need for the luxury industry to become agile. To be ready and able to invest in new value propositions and test different formulas to meet market needs.
And in an environment of real bankruptcy fears, conducting a careful risk assessment that goes beyond COVID-19 has untold value. It not only pinpoints potential vulnerabilities along single-source supplier, geographic and financial fault lines, but identifies ways to mitigate them.
Relevance, endurance, and agility
Those who can adapt quickly to new ways of working—in day-to-day operations, channel tactics or maintaining rapport with existing customers—stand to not just weather recovery, but emerge stronger. Brands who move decisively to establish their position with relevance, endurance and agility, will be best-placed to ride out the short-term, maintain brand empathy medium-to-long-term, and sustain profitability and investment for the future.
While the ability to navigate a sure way through this complex picture may not be a skillset held by many luxury businesses, AlixPartners works with companies to respond decisively when it really matters. By adopting an industry-experienced, action-oriented approach, luxury businesses can take the steps that count.
Download the What’s Next For Luxury Brands report to learn more.