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  • IMPRESSIONS from a Cross-section

    Topic

    Despite early apprehensions, Bain Altagamma’s Spring 2021 report reflects the strong rebound of luxury in 2021. What is your opinion about this? Where do you see luxury heading globally despite the world expecting a third, fourth or fifth wave of Covid?

    Luxury is not just about high prices but ability to create desire
    COVID-19 notwithstanding, the luxury sector is set to witness a surge this decade with some fundamental shifts. This shift will see brands that are committed to exciting the customers flourish. A global panel of experts talks about the trends around reset of the luxury business, new directions in digital fashion, NFT, metaverse and much more.


    What we have observed is that the luxury market in Q1, 2021 has already bounced back to the same level of Q1, 2019. So basically, it has gone back to pre-Covid levels. This gives us a very good signal on customer behaviour. But there are important shifts in this market in the sense that it has evolved quite a bit in the last 24 months in terms of generations with Gen Z becoming a true target. For luxury brands globally and specifically in Asia and US, the shift to online channels has doubled. In China, the key message is that luxury brands have been able to uplift the game of customer experience which was not obvious just 24 months ago. So we see this market very alive, and we see this customer very willing to buy these products. Of course, there are some categories and some geographies that by nature are slower to recover but in general we believe that for sure by first quarter or at least by first half of 2022 the market will be back to pre-Covid levels.

    The pandemic impact has been terrible for everybody, the world over, but the luxury sector has always been in a position of reacting quickly probably because every 5-7 years, the sector has to face the entrance of a new generation.

    So, the supply side and retail side is in a condition to find new ways of engagement, without losing grip with the previous generations.

    And going to the polarisation between the super brands and the regular ones, if you have a look at the balance sheets of companies of Louis Vuitton or Gucci and you compare their balance sheets of 2018 with the ones of the year 1983, you can see their growth was very much higher than 40 times. So, this means that the sector has the ability to grow in spite of a number crisis like the Covid-19.

    The luxury sector has always been in a position of entering last in a phase of crisis and being in a position of recovery first compared to all other sectors of the business. So yeah, I’m positive, as Federica has been.

    In many ways 2020 has reset the world’s luxury market. The point has already been made but luxury is often one of the first industries to take a hit in times of crisis and that said it’s also one of the most resilient sectors to come out of it. I believe there is an inflection point with digital luxury meeting physical bespoke experiences and this again is going to be a very interesting phenomenon going forward where more and more customers would want lifestyle experiences.

    I just want to add maybe one thought, and it’s a bit of a warning sign. You have these super strong performers right now, some brands going double digits in the first quarter and then you have brands that are in complete collapse. I would say the brands that are not doing so well should not hope for rebound after Covid. Because a lot of the issues that these brands are suffering from are kind of homemade issues. They have not connected strongly enough with their customer base, they didn’t excite enough, there’s a huge issue with pricing. Many brands have done crazy amounts of promotions and have weakened their brand equities and during the crisis have maybe overreacted in the last year. These brands are not going to just recover because the market is bouncing back. I think the name of the game in the next couple of months and years is going to be excitement of the customers and really kind of rediscovering, especially for those brands that are not performing so well. Luxury is not just about high prices but first and foremost about the ability to create desire, the ability to create products that customers really want. It sounds banal because it should be what everyone is doing but sometimes when companies get busy and do basically their execution, they sometimes tend to forget this and I think that we will see a huge number of brands disappear and I don’t think that this can be neglected.?

    And a lot of brands during the last year used more of a “wait and see” approach, maybe played a bit too conservative, and again working a little bit too much on price and promotion rather than exciting. I think that in the next few years especially with Gen Z, we will have a generation where the stakes are much higher. This generation expects much more from brands, because they are so digitally immersed, they want even more and better physical experiences in the stores and brands will have to find solutions for them. I’m pretty sure that if I analyse the top performing brands at the moment, I would say, to me they all have the ability to excite very strongly digitally and connect very strongly with Gen Z and also in particular with the Chinese customer that, as we know, is more and more important for the luxury industry. Those brands that are lagging behind typically don’t have this ability at the moment. So, I think that there is really a need, especially for those brands that are not performing at the moment, to think in a different way and to almost re-invent themselves. I would say the clock is ticking.

    We are looking at all the markets globally and we have the trend lens programme that runs in the US, Europe and Asia every 6 months, and especially in the last 2 months data was collected across geographies. So, what I’d like to add is that while generally it is positive, there is a continuum where countries come in. China is looking very optimistic and we have seen a bounce back with the US brands as well. There are some in the middle which are very cautious like Japan, Singapore and Hong Kong which are more tourist related. There are parts of Europe, driven by tourists, which are still cautious and not looking that optimistic across categories. And then you have brands in which different categories are impacted like you have beauty, fashion, wine and alcohol and private banking has seen a huge increase as compared to hospitality. It’s good to point out that overall, it is optimistic.

    Luxury bounces back much faster than others but at the same time, there are iconic brands doing well and it all depends on the market. Whenever a company needs to look at their strategy, it has to be localised now because every kind of geography is reacting to covid in a different way. So that probably is the way forward.

    This article was first published in the August 2021 edition of the print magazine.

    Published on: 01/09/2021

    DISCLAIMER: All views and opinions expressed in this column are solely of the interviewee, and they do not reflect in any way the opinion of Fibre2Fashion.com.

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