Written by Paula Grineri - Tuesday, November 17, 2020
Prior to the pandemic, estimates for the global luxury market were on a positive trajectory. Now, forecasts show a drop of -25% to -45% in 2020 depending on the type of goods. Depending on our ability to distribute a vaccine more or less quickly, forecasters estimate that the market will take 2 to 3 years to return to the level of 20191.
This crisis has also revealed new behaviors among consumers and acted as a trend accelerator. Consumers are becoming more and more attentive to sustainability and ethical issues while giving digital more importance in their buying journey.
The pandemic presents a number of challenges, but also opportunities for brands and distributors of luxury goods. Let's take advantage of the release of the seventh study by the BCG2 firm to analyse new trends.
The pandemic slowed down international tourism and in particular shopping linked to these travels, encouraging consumers to shop online, even for the most reluctant. Brands must not only find a way to fill the gap linked to the absence of tourists, but also prepare for new consumer expectations. Obviously, those who have integrated digital platforms into their distribution channels are doing much better.
The jewelry and watch industries have not been spared and are suffering both from the fall of international tourism but also from the low engagement of the digital channels. E-commerce currently represents only 10% of jewelry sales and 5% of watches.
China, the country hardest hit at the start of the crisis, is also the one to recover the fastest with a return growth above its 2019 level. Chinese people are used to shopping trips, consuming luxury goods abroad and 73% of them confirm their intent to spend at least half of this yearly budget instead in China over the next 12 months, which will certainly boost the local market. Half of them maintain that they would prefer to wait 6 months before traveling to international destinations again, amongst which France remains the ultimate luxury shopping destination...
Two emerging trends are identified in the study carried out by BCG: on the one hand, Western consumers say they prefer purchasing discreet and timeless products, on the other, Chinese consumers maintain their preference for goods with prominent logos and ornaments.
Millennials and Gen Z were most affected by Covid-19 compared to older generations. However, the BCG study reveals that they are more optimistic for the future: 53% believe that the recovery will be rapid against 20% for the older generations on average.
With or without crisis, these generational cohorts are of particular interest. They are the precursors of existing trends such as the preference for personalized clienteling, online shopping and inspiration through social media and influencers. Among Gen Z and Millennial, 60% say that a social media ad influenced their buying decision during COVID-19, compared to 25% of older people.
Millennials and Gen Z are now suffering from the effects of the pandemic but they are expected to represent 55% of total luxury consumption by 2025. The short-term priority is to find the right balance between engagement with younger generations, who represent the future of the market, while encouraging older generations, who have stronger purchasing power and are currently the main luxury consumers.
Luxury brands must adapt to local demands but also multiply digital sales channels with their own e-commerce site and multi-brand platforms. In its study, BCG points out that digital is playing an increasingly important role, not only in transactions, but especially in the inspiration stage of the purchase journey. It is therefore imperative for brands to strengthen their presence on social networks. To be as transparent and authentic, BCG advises them to use third parties such as influencers.
Among their recommendations, BCG invites companies to invest in data analysis and artificial intelligence to place the consumer at the heart of their strategy, anticipate market developments and offer personalized products and services. This is the principle of Clienteling 2.0. Brands need to make sure the relationship is nurtured both in-store and online by combining the capabilities of people and the data obtained. Omni channel is becoming the norm. Customers want to replicate online the kind of brand relationships they previously had offline. Brands must therefore invest in digital to create exclusive experiences far superior to those offered in a conventional manner.
Although the study confirms the rise of digital technology, this does not mean the death of retail. Particularly in the watch and jewelry sector, 25% of people interrogated confirm they would prefer to buy in-store rather than online (especially Western customers). The 2.0 store will be very different: it will focus on experience and service with a "hyper-localized" assortment. Single-brand stores will have a new role to appeal to consumers: fewer, more immersive and more experiential, a place for discussion and socialization.
Consumers expect brands not only to review their production and distribution processes to meet the challenges of global warming, but to assume their societal role as well. More than half of those questioned say the actions of brands in favor of the environment will be more likely to have an impact on their purchases, more than before the crisis. To be a 360° player in sustainable development, brands must commit to society as well as to the environment, develop sustainable strategies beyond obvious initiatives and accelerate transparency.
The pandemic has changed habits and redefined the very notion of luxury. In this new reality, consumers will buy less, more locally and more selectively with a new "phygital" distribution between digital and physical channels. Brands face many challenges. Become resilient, ensure diversity while being inclusive, integrate all the possibilities of digital and new technologies while remaining faithful to their DNA.
The era of "slow luxury" has begun, more inclusive and heterogeneous and this trend is here to stay.
Source:
1 For its seventh edition, BCG's study on the global luxury market was carried out in two stages: in January and then in June 2020, thus measuring the impact of the pandemic on the market. Based on a sample of 12,000 people spending over 39,000 USD / year on luxury goods in the top 10 luxury consumer countries; USA, UK, Italy, France, Germany, Brazil, China, Japan, South Korea and Russia, UAE and KSA consumers. The study distinguishes between personal goods (clothing, perfumes jewelry/watches) and experiential goods (hotels, travel, etc.).
2 BCG Study & Tencent Marketing 2020.
3 « Sobriety is the way » in the BCG study.
4 « Extra is cool » in the BCG study.