With the entire fashion industry reeling under the COVID-19 effects, could the luxury industry remain unaffected? Hardly, says the latest study by McKinsey & Co in association with Italy’s Camera della Moda and trade show organizer Pitti Immagine. The study says, he personal and experiential luxury business, valued at €390 billion in 2019, is likely to decline almost 45 per cent by 2020-end while the leather and accessories goods sector is likely to decline by around 35 per cent. Since January 1, 2020, global luxury apparel and fashion segment has lost almost 40 per cent of market capitalization with retailers losing revenues worth 50 percent of their market capitalization.
Global luxury sales to fall as shoppers shun stores
Around 31 per cent of the 2,100 executives interviewed by McKinsey expect global sales of luxury goods to drop by around €140 billion in 2020 and by €150 billion by 2021. This can be attributed to the fact that 50 per cent of luxury shoppers now prefer to spend time with their loved ones rather than buy desirable goods. Buyers also prefer to buy sustainable goods from local and nearby shops rather than from big brands.
E-commerce to pique sales
E-commerce is likely to gain ground with around 24 per cent shoppers opting for online channels to gain their first luxury shopping experience. Brand promotions with commitments to fight COVID-19 are some of the factors driving these consumers towards online shopping. The research states, jewelry, watches and eyewear are likely to be some of the categories most affected by the pandemic with consumers delaying their purchases of these for later date. Around three quarters of consumers expect to resume their pre-COVID-19 luxury spending habits after the emergency, but 80 percent of them plan to adopt special measures to prevent infections.
Wholesalers to face liquidity crunch, increased digital competitions
Amongst various categories, 46 per cent of independent wholesalers are expected to face liquidity crunch and aggressive competition from global online retailers offering early discounts on spring 2020 collections ranging from 30 to 40 per cent. As digital channels have become a key support for these luxury brands, developing partnerships with specialized e-tailers will help them to provide good service and meet their shoppers through different touch points. The survey states, COVID-19 has also disrupted traditional fashion calendar digital events. Designers and brands are also planning to reduce the size of their collecteion besides organizing shows closer to in-store sales
Value creators versus value destroyers
The problem of excess inventory is also likely to compound this season with unsold inventory accounting for 150 per cent of expected spring/summer ’20 sales. Labels having strong fashion content and a limited directly controlled distribution system will be more affected than established brands. COVID-19 will also widen the polarization between value creators and value destroyers in the industry with the former accounting for 177 per cent of its profits.