We are still fighting the COVID-19 crisis that many brands are wondering what to world post-crisis will look like. Marketers tend to say that the world has changed and that the end consumer will think twice before going back to his old habits. Hard to understand what is true from what is not.
“As shutdowns continue, consumers still expect reduced income and expenses. But they report some areas of increased spending and are adopting new brands, channels, and behaviors they say they will keep.” – McKinsey Covid-19 Report
While countries like India and China maintain a certain optimism, other countries like Brazil, the US and most of Western Europe seem to let pessimism to gain households. People tend to think their revenu will decrease in the next incoming weeks and countries like Brazil where the health care system is collapsing under a president with specific ideas (let’s say), the future does not seem so bright.
Nevertheless, while certain economic sectors are having a hard time, others have an increase. People might travel less but spend more, especially online. Therefore new consumer habits gain momentum and we could imagine that new opportunities might appear and lead the way to growth.
The world post-crisis will not be fundamental different from the one before. Certain things might change but there is a lot of marketing bla bla going one. It is like if the crisis was a marketing concept that brands could take further.
Optimism And Consumerism Are Still Tight To Each Other…
In the woldwide survey done by McKinsey, we can see a very interesting corelation between optimism and the capacity of continue one’s consumer habits.
On the chart above we can see the crossmatch between optimism and households spending. It is interesting to see that countries like China, Indonesia, Saudi Arabia and even India are very optimistic about the future and also believe they will increase spending in the future.
People can see the glass half-full or half-empty right? This crisis has put the world into pause mode. This does not mean that once we press the play button again that things will not restart where we left.
According to WWD, the first day that the Hermès boutique in Guangzhou re-opened after several weeks of confinement, customers rushed to the store and basically bought the entire collection. In one single day, the Hermès store sold for more than USD 2.5M. This is a record for Hermès and for any store in China. Call it revenge shopping or confinement frustration, customers just want to get back to their own lives.
China has almost retrieved the same level of sales as the same period last year. It shows that not only households are determined to get back to normal but they have the frustration of almost two months of confinement. Consumers are expected to spend more on certain items like food, healthcare, and other personal-care items. This being said, the key to brands will be to provide a very solid supply chain in order to bring availability and flexibility to customers.
“A product that you cannot find, it is a product you will not buy” – José Amorim, Chief Editor LuxuryActivist.com
Ecommerce is for sure an option but in case your brand, especially in the luxury sector, is not open to becoming a convenience, you will need to make sure that your supply chain is strong enough to keep up with the activity. Consumers can easily change habits and very often a product that you cannot find, it is a product that you will not buy.
… But Not Always!
For many people, the Coronavirus crisis was a wake-up call. We know that if such a virus was able to spread so fast across the world, it means that something is unbalanced, that our lives are to much into some extreme. Travel and transport became a wild animal and consumerism tended to end up meaningless. This is true, especially among the young generations and the generation Z.
On Business of Fashion, you can read an interview with Tang Yue, a 27-year-old teacher from the city of Guilin in southwest China. With Tang’s monthly salary of about 7,000 yuan ($988), the self-described shopaholic said she has bought everything from Chanel lipsticks to Apple’s latest iPad in the past three years. Now, she realized that the world cannot continue in this sense, therefore a more slow pace might be appropriate.
“The coronavirus outbreak was a wake-up call. When I saw the collapse of so many industries, I realized I had no financial buffer should something unfortunate happen to me.” – Tang Yue, 27 years old for BOF.
We see a new trend among young Chinese in which they are not buying anymore but at the contrary they are selling. It is an interesting point as China is for sure a leading force for any change. This means that consumers will have second thoughts in case the deal offered to them does not make sense.
Luxury brands have a bright future unless they do not want to
Luxury brands have operated with extreme precautions during this Covid-19 period. Most of them reduced dramatically their advertising spent and adapted their communications in order to avoid any bad move.
First of all, it is clear that this crisis will accelerate consolidation. Each industry will have their winners and losers, therefore opportunity for external growth might help companies to being sold or to acquire their competitors or to grow vertically. This is exactly what happened during the Swiss watchmaking crisis at the end of the 70’s. While certain companies would go bankrupt, they got acquired by competitors or customers in order to maintain a sustainable supply chain.
Second, the true winners will be brands with very balanced international sales. Global brands will have a much solid base as growth can come from different places around the world, whereas brands mainly depending on one country or region will be more fragile. This means that global big brands will have an advantage here. Luxury brands with a strong international appeal do have an advantage if we compare with other sectors like automobiles, food, or design that might be more regionalized.
Virus or not, let’s not forget that the world was facing already pretty big challenges with global warming and the men footprint in nature. Luxury brands will have a tremendous role to play here. While fast fashion has been devastating half of the planet, luxury brands need now to face a certain responsibility. Wise consumers expect from brands to be responsible and to deploy sustainable production frameworks. People understand that their power is their wallet and how they invest their money. Therefore they will choose brands wisely. Luxury brands have a tremendous advantage because they offer:
- Products that last
- Products that often can be repaired
- Respectful and more local craftsmanship
- Global appeal
Luxury sales are expected to be down by 25 to 30% in the first quarter of 2020. By the end of the year, the luxury sector might end up with a -15% which considering the situation is a pretty good result. We already know that China mainland, Hong-Kong, and Taiwan has been back to business, and results are promising.
Beyond the situation of Covid-19, Luxury brands have a great opportunity to establish a new business model, more responsible, sustainable and at the end more appealing to the end customer.
José Amorim
Information sourced by the author for luxuryactivist.com. All content is copyrighted with no reproduction rights available. Images are for illustration purposes only.
