The corona crisis not only knocked down the luxury goods industry, but it commanded a redesign. “Luxury will emerge from this crisis more purposeful and dynamic than ever before”, analysts Bain & Company firmly believe.
A new meaning of luxury
By 2030, the luxury goods industry will change drastically. “We will no longer talk about the luxury goods industry, but about a market for rebellious cultural and creative excellence“, according to the consulting firm Bain & Company in a new research report. The winners will be those who maintain their operational strength, but who also add a rebellious character to it.
They must dare to rewrite the rules of the game because the global health crisis is redefining the industry. From the position of stores to the essence of the concept of luxury: the industry will never be the same again after Covid-19.
Fewer physical stores
The virus has already accelerated the digitisation in every aspect of life. Concerning the luxury goods market, this resulted in a risen online sales turnover from 33 billion euros to 49 billion euros in one year. The share online purchases bring to the table has nearly doubled from 12 per cent in 2019 to 23 per cent today.
Although, this dramatic increase comes at the expense of physical stores: the network of luxury brand stores is likely to shrink by 2021. After all, clothing retailers, in particular, will have to battle the increasing competition from online, social media and consumer-oriented brands.
Rebellious newcomers
As a result, a wave of transformation is engulfing the industry. It is common in today’s retail sector to see an increased polarisation due to the clash between innovative newcomers and old established brands who fall behind. The fact that all varieties of personal luxury goods will have shrunk as a result of the corona crisis in 2020 further increases the stakes.
The price gap also widens: while the overall market has fallen, entry-level products in all categories have experienced growth. This year, they accounted for over fifty per cent of goods sold. The rules of the game are thus changing in search of relevance: new business models provide more accessible luxury, increasing the competition from new and rebellious brands.
Private jets and activism
Furthermore, the corona crisis is continuing to make itself felt in consumer behaviour: travel and services are likely to fall behind as long as tourism is put on hold. Experience goods (which Bain defines as fine art, luxury cars, private jets and yachts, wines, drinks and gourmet food), on the other hand, will recover the quickest, even faster than traditional luxury goods. Products offering an experience thus take the lead in path to recovery.
In addition to sustainability and environmental issues, diversity and inclusivity have come to the fore in 2020. Younger generations, in particular, who will be responsible for 180 per cent of the growth in the luxury goods market between 2019 and 2025, are placing an unprecedented emphasis on tackling social and racial injustices. These activist consumers are looking for brands that match their vision and values.
“Luxury brands have had a year of major shifts, but we believe that the industry will emerge from the crisis more purposeful and dynamic than ever before,” concludes Federica Levato, partner at Bain & Company and co-author of the research.
