- Luxury retail has been severely hit by the COVID-19 pandemic and has lost billions in sales.
- We have some insights as to what comes next for them.
- Research firm Bernstein believes that a change in consumer behaviour due to the lockdown will massively affect long-term luxury brand sales.
- Visit Business Insider’s homepage for more stories.
Sales of luxury brands have been hit hard by the coronavirus pandemic. That did not stop some of the most popular names in the luxury retail world from aiding the fight against the virus.
However, luxury retail might be losing sight of broad-term implications by focusing too much on the present, according to a recent study by research firm Bernstein.
The study suggested what might come next for luxury brands. It observed that luxury brands are heavily reliant on consumers from China: 70% of luxury goods purchases are made by Chinese tourists abroad.
In a world where people travel less, a recapture of Chinese spending in the global retail market would resemble a similar challenge faced by luxury brands in recapturing Chinese spending in Hong Kong last year, the study said.
Here are some other things the report said:
Travelling like before seems far-fetched
Since most luxury purchases are made by people who travel, the stronger brands that enjoy “must have” status will be the ones standing tall.
Hong Kong is a major Asian market hub for luxury retail trade, especially due to its affordability and cheaper rates compared to mainland China. Last year, protests in Hong Kong had hammered its luxury sales as Chinese consumers chose to travel elsewhere.
Bernstein says the key to luxury brands surviving will be the adoption of price differentials, like in Hong Kong’s case.
Travel retail spending is expected to be on the back foot for a long while. European businesses, built to serve overseas customers, are likely to suffer further.
Tiptoe-ing back to normalcy
Bernstein expects consumers will exercise caution in social gatherings, including going out to restaurants, shopping malls, or to the cinema.
This change in consumer behaviour would imply a slower recovery for wine and spirit sales.
Staying at home would have an impact on the use of beauty products, as well as fashion and other accessories.
This would be the case even if social media activity is high and working remotely requires people to keep up appearances, the study said.
Consumers are likely to be poorer, on average
Each month of lockdown will cause a dent of 5-6% to GDP, according to Bernstein. Small and medium businesses will be hit hard, many may not survive the shock. The tourism sector will be especially fragile, the report said.
Much of the luxury goods industry relies on middle class consumers who feel wealthier relative to the recent past.
In the near future, even rich people may not be in the mood to spend money, feeling relatively poorer due to the stock market being in doldrums.
Market resilience and looking forward
The good news, Bernstein says, is that investors believe long-term prospects for the luxury sector remain strong and the pandemic will be an interim hindrance.
Although Chinese domestic demand is on the rebound, this is unlikely to reappear as soon in the US and Europe given the coronavirus prevention measures there.
The shape of recovery and its speed – especially outside of China – may be shallower and slower than the market expects, the report said.
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