Can technology revive a brick-and-mortar industry? An insight into the position of luxury retail amidst the pandemic

Tuesday 1st September 2020

The luxury industry has arguably been one of the most challenged during the Covid-19 pandemic lockdown. This mostly stems from the industry’s heavy reliance on customer experience, which has proven difficult to fully replicate virtually. Despite this, it is clear that technology has helped all industries in some shape or form during the pandemic – according to Mary Heaney, the Managing Director at Luxury Law Alliance, technology could “reshape luxury”, specifically by reconfiguring how to better reach their clientele whilst keeping their employees in work.

We have certainly seen its potential, with luxury watch manufacturing brand Seiko, for example, generating more online sales between the 1st of April to the 30th of June 2020 “than in the previous 12 months combined” (Wired). These sales appear to be driven by the omnichannel approach some luxury brands have adopted on their online platforms – in particular, Yoox Net-a-Porter and Armani, two luxury Italian fashion retail brands, have collaborated to maximise the success of their idea for a new model of online shopping exclusive to the luxury industry. This “next era model” enables its customers to view stock availability in stores worldwide, consequently enhancing customer satisfaction and increasing sales turnover.

Furthermore, while brick-and-mortar luxury stores have been forced to shut for several months following the lockdown, this has not yet discouraged the industry. Specifically, Yoox Net-a-Porter’s decision to sell their inventory via the brand’s “designer discount sister site” makes them well equipped to serve their customers regardless of shifting economic climates. This is because the two sides of their business “complement each other”, with their in-season business (Net-a-Porter) succeeding during economic booms and their “off-season-business” (Yoox) thriving during so-called “shocks” (CNBC).

While the UK is now officially in recession, previous trends from the 2008/9 economic downturn demonstrate that the luxury industry is capable of survival (and may even prosper following this). This is due to the industry’s ability to charge higher prices for their goods – indeed, the Hermes Kelly bag, renowned for it being named after the American film actress Grace Kelly (after she used the brand’s handbag to hide her pregnancy from the press in the 50’s), was retailed at 58% higher than the year 2000 in 2013. Even during the pandemic, customer demand for luxury fashion products did not cease to escalate, with the Nike and Dior collaboration for the Air Jordan 1 OG sneaker seeing more than 5 million people registering to buy a pair in July. As of then, the shoes are going for five times more than its original retail price in the secondary market. It is becoming clear that the industry is placing heavier reliance on Millennial and Generation Z customers’ appetite for luxury trending goods – this is likely to fare well for them, with the consultancy firm McKinsey predicting a positive growth of 1% to 4% in 2021.

However, one of the main concerns for some luxury labels is their unwillingness to engage with e-commerce, claiming that it does not sit well with their brand image. The fact that customer service is such a big contributor to the success of the industry means that most luxury brands will never go fully online. Luxury watch companies, in particular, have proven reluctant to jump in the deep end of e-commerce, with Rolex refusing to go online and Patek Philippe only agreeing to set up an online platform this year. Antoine Pin, the managing director of Bulgari’s watch division admits that, despite the fact that their watches have sold incredibly well over lockdown, their physical stores offer the ultimate luxury experience – something which will remain important to maintain for years to come.

Another issue is the idea that luxury goods customers are less willing to purchase previously sought for products, particularly in luxury fashion retail due to these purchases largely being based on social activities, like going out to work or a party. Instead, existing customers have shifted their focus to “health and vitality” during the lockdown period, and still remain doing so with Malinda Sanna (founder and CEO of Spark Ideas) dubbing this the “new luxury”. While luxury stores have reopened their doors to the public, the luxury experience that once was has been disrupted by the pandemic; the legal requirement to wear a face covering, coupled with restrictions on trying on fashion items, ultimately restricts luxury brick-and-mortar stores. Attempts have been made by luxury department stores to continue providing a “luxury experience” in creative forms, with DJ entertainment provided for those queuing outside Selfridges, for example. While most stores have reduced their opening hours, the department store has exclusive personal after-hours shopping opportunities for customers willing to pay more. Despite this, luxury department stores, including Harrods, have been reported “largely empty” by several sources since opening. Meave Wall, the stores director of Selfridges, hopes to “bring Selfridges into the comfort of people’s homes” – this inevitably means that more focus has been placed on their website, fortunately paying off as online sales doubled over the lockdown period.

According to the Financial Times (FT), there are two main drivers of the luxury industry: the first being travel and the second “Chinese demand”. The former has very obviously been massively disrupted by the pandemic, and while the travel industry is operating again (albeit with limitations and quarantine measures imposed for some destinations), it is predicted that the “reluctance to fly will hit the third of luxury sales normally made abroad”. This relates to the latter driver, with Chinese tourists largely contributing to the global success of luxury spending, making up more than a third in 2019. The FT warns that growth could be halved if the country experiences more bankruptcies. However, it appears that the country is acclimatising itself better to the use of technology in the luxury industry – in Shanghai, “sales associates can text and reach out one-on-one to their highly valued customers”, with Sanna referring to these relationships as “gold” in our current economic climate.

Overall, many sources predict that recovery for the luxury goods industry will be U-shaped, with some luxury brands coping better than others amidst the pandemic. For now, it is important to not place too much focus on figures, as the future for the industry remains largely unpredictable in these unprecedented times.

The first virtual Luxury Law Summit due to take place on September 3rd will seek to clarify some concerns and hopefully provide the industry with the optimism they need to persist forward.