Impact of Global Pandemic on the future of Luxury Market: Philippe Rotten
The real challenge for the industry will be to find a balance between physical and digital retail and ensure that these two universes and co-exist and complement each other writes Philippe Roten, CEO, Favre-Leuba.
Across the world, the ongoing pandemic has spelled doom and gloom for most markets and most sectors of the economy. The forecast for the luxury sector has not been very rosy with a recent report by Bain & Company predicting a 35% drop in sales by the end of 2020 and the Swatch Group estimating a sales drop of about 40%. However, despite these seemingly alarming figures, I do not believe there is much reason for worry for the luxury sector.
In fact, I am confident that post this pandemic, the luxury industries will be among the first to pick up in sales and reach the same levels as before. This is because, people often want to treat themselves to something good after going through a period of difficulty and deprivation. This trend in consumer sentiment is already evident in some countries where the markets have opened, and luxury retail is already picking up.
Going forward, one of the biggest changes in the luxury sector will be sizeable shift to e-commerce and digital platforms. Many people, particularly the older generations, are now equipped to doing shopping online and have started buying even the most staple items like bread and milk over the internet. This increased aptitude for e-commerce will surely translate to other industries, including luxury. I anticipate that digital sales will account for about 25-30% of our own turnover as compared to the 5-6% before the pandemic. The greater role of digital sales will also reflect in the marketing strategies of luxury brands, with advertising budgets being directed from print to social media to support the e-commerce business.
However, it is important to note that luxury retail is very experiential and tied deeply to the touch and feel of the product. For consumers, the purchase experience is not just about buying the product but also connecting with other people, sharing opinions, comparing, pondering and so on. So, I believe that the physical retail aspect will continue to be an integral part of the luxury industry and it will be just as important to have a strong offline presence in the form of boutiques and retail partners across the world. The real challenge for the industry will be to find a balance between physical and digital retail and ensure that these two universes and co-exist and complement each other.
Another impact of the pandemic for most sectors has been the disruption of supply chain due to nation-wide lockdowns across the globe. Going forward, this will encourage brands to start producing locally as is indicative of various clothing brands that have already taken this step. However, for Favre-Leuba, no such changes will be needed because we are already Swiss-made and will always continue to be Swiss-made. That label is of paramount importance to us. It is a sign of quality and a sign of our origins and we will continue to produce in Switzerland and stay true to that.
Arguably, tourism has been the worst hit industry due to the coronavirus crisis. And the impact on tourism has also reflected on the luxury sector. Travelling and shopping often go hand in hand because when people travel, they buy. Lucerne is a great example of shopping tourism. Around 8 million people visit this Swiss city every year and a majority of them visit with the sole purpose of buying a watch. Predictably, the drop in sales and tourism has been a big blow to the economy of Lucerne, and even Switzerland at large. However, this reduction in tourism will not decrease the turnover of luxury shopping globally. As people will be travelling less, they will stay in their respective countries and purchase the products from their home markets. So, certain markets will benefit from this and certain will lose, but the overall sales will not be adversely affected.
Finally, perhaps the most important and defining change in the future of the luxury sector will be a heightened environmental and social consciousness. This conversation about sustainability and a growing sensitivity about how we produce had already taken root before the pandemic, and now, it will gain even greater momentum. The younger generations are particularly conscious about the environment. They want a peak behind the curtains to see how we produce, how we treat nature and also, how we treat our employees. These factors are now just as important as the product itself and must be communicated well through story-telling. Favre-Leuba is also adapting to a more environmentally conscious way of thinking. For example, we have an upcoming tide watch wherein the watch cases will be made from plastic waste from the oceans. We will also rethink our packaging and use recycled materials which can be further repurposed by consumers. We place great importance in assuming responsibility and showing respect to the demands of our clients and the needs of the nature.
In conclusions, while the pandemic has affected the luxury sector in various ways, I do not believe there will be drastic long-term consequences, and the resultant changes will only benefit not just the industry, but also the planet.
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