MIAMI, FL - JANUARY 30: Jake Paul of Los Angeles California enters the ring wearing a Louis Vuitton and diamond mask as he makes his boxing pro debut on January 30, 2020 part of Matchroom Boxing and DAZN Miami Fight Night at the Meridian in Miami, FlImage: Rich Graessle/Icon Sportswire via Getty Images
The Indian Luxury Industry has been growing consistently at a pace of 20% to 25% per annum for past several years, it was projected to touch $180 billion by 2025.
However, all is not well at the country’s economic front. Mainly on account of weak manufacturing and a drop in exports due to a global slowdown, the Indian economy grew in its slowest pace in six years—a mere 4.5% during the second quarter of FY 20-21. The final quarter of the year, despite its peak wedding season boom, did not add great numbers either.
To top it further, the Covid-19 pandemic hit the world and brought the world to its knees. Among the worst hit was the mecca of luxury—Italy.
Italy’s close association with China, its biggest market, as well as Chinese workers in Italian factories, came like a double whammy for the luxury trade. The Indian luxury trade was then at a stage of launching their spring summer collections. A few brands had done so whilst some were in the middle of bringing their merchandise.
With all businesses and industries throughout the globe in massive chaos, there has been a grave economic impact of coronavirus across the sectors from tourism to airlines, from entertainment to education, from cruises to cars, from food to fashion and so on. Marketers across industries are trying to redesign their business models and the luxury industry is no exception.
In light of this, where does the luxury industry stand? Our research sheds some light:
A majority of customers are waiting and watching. There is an air of uncertainty, despair and helplessness. In the short run, the impact of this lockdown and the coronavirus is extremely negative. Most feel that the negative impact will continue for some more time even after the lockdown is over. Depending on when the market normalises with respect to mall and store re-openings etc., the expected drop in business in the year 2020 is likely to be in the range of 30-50%.
A large number of brands have been humane and compassionate with their staff. Most organisations are in a mode of ‘work from home’. Others have also resorted to salary cuts at all levels. Only a handful have asked their teams to proceed on unpaid leaves on furlough and a very few have resorted to retrenchment and downsizing.
The worst affected sectors have been automobile and real estate, whilst the least affected ones have been beauty and skin care along with wines and spirits. The least affected will be the fastest to bounce back.
Changing consumer behaviour
Conspicuous consumption is likely to be replaced by conscious, responsible and sustainable luxury. Brands can no longer just skim the surface and will perhaps need to take sustainability more seriously.
Logo driven consumption may be temporarily taken over by subtle, logo less designs and styles. Elegance and sophistication will be the new bling.
Fast fashion may see a dip—customers will choose quality over quantity. Slow fashion meaning luxury fashion, and accessories, can see a revival.
Can a spurt in spending be expected post the lock down period? Which sectors will take the lead?
A spurt in luxury sales can be anticipated immediately after the lockdown. Pent up demand in non-essential yet extremely relevant sectors like beauty, wellness, skin care, salons and fitness will see a growth. Revenge shopping phenomenon can and should be anticipated.
The lipstick effect will surface strongly where beauty products will see an uptick. Due to the need to cover your face with a mask, the lipstick will be replaced by eyeliner or mascara.
Will retail tech play an important role?
Accelerated digitisation across service and business models will become a necessity. Technology will penetrate all aspects of our lives from retail to health care to travel and banking. Contactless service, digital banking and payments, artificial intelligence, augmented, virtual and 3D reality will become part of our lives.
Digital medium will need to be adopted beyond just social media to now digital commerce by luxury brands.
How about pre-loved or renting luxury?
The sharing economy could face a downturn due to hygiene requirements. The automobile industry may see an upturn due to reluctance of usage of Uber and Ola shared cab services.
What are the anticipated newer models on the horizon?
Business and service models across sectors will get affected and remodelled basis the social distancing norms. Passengers allowed per car may be redefined. In aviation, reduced number of passengers will result in newer seating arrangements and costs.
In physical retail, fewer staff members will service fewer clients, and this will necessitate a new layout. In fine dining, service by appointment and social distancing may reduce service capacity to 25-30% of existing formats.
A volatile and sluggish economy, changed consumer expectations and digitised retail model could be the new challenges for luxury brands.
The state will play an important role in the setting of sanitation and hygiene standards. Like security checks, a hygiene check may become necessitated in confined spaces like malls, cinemas, offices etc.
After the crisis gets over, the luxury industry remains hopeful to bounce back to previous consumption levels. This is a time for brands to prepare themselves for the future by identifying gaps, turning weaknesses into strengths and strengths into distinctive competences. This pandemic may bring a major change in the consumers' mindsets and the value system that underpin their luxury buying decisions. People will become more responsible and cautious towards luxury buying and will expect a lot from brands, which will lead towards sustainability. Brands that would work to understand this and adapt accordingly will surely turn out to be the new champions.
The above research inputs are summarised from a study by the author, ‘Corona Virus and its impact on Indian luxury’. The complete report is available as an e-book extension on pre-launch purchase of The Incredible Indian Luxury Bazaar.
Abhay Gupta is founder and CEO – Luxury Connect, and a consultant to luxury brands