A look into the future through today’s vision of authenticity, online customer journey, social purpose and the crisis power of the Homo Economicus
2019 was a year of growth for the fashion industry, most brands increasing their sales of clothing and footwear, hence, in 2020 everyone was expecting a successful development, whether we are talking about the number of stores or the launches of new designers, artisans or mass-market. Unfortunately, the entire world came to a standstill amidst COVID-19, and this industry was also shaken by challenges.
The European luxury market has shown balanced progress at the beginning of the year, despite a considerable fluctuation within some countries. According to Bain & Company, the Italian market took the hardest hit, as the pandemic caused double-digit sales drop across the country. And when we look at the global market, the sector was forced to reckon with a massive economic downturn, registering a year-on-year sales decline of 25% to 30%.
As this crisis continues to gain ground around the world, the big luxury brands have announced the cancellation of their shows and they are offering a helping hand to doctors and hospitals, by producing masks, coveralls, and hand sanitizers, while at the same time making important donations.
Romanian customers have the largest share of the local luxury goods market
„Our country hosts luxury brands such as Armani, Versace, Ralph Lauren, Dior, Prada, Chanel, Hermes, Louis Vuitton, and Gucci. In Romania, these brands were expected to register a combined performance in 2020, due to some positive changes experienced by the country in 2019, considering the growth of high net worth individuals, the positive incoming earnings, and the general gain in disposable incomes. All these led to a dramatic change within the purchasing habits among buyers: sustainable consumerism, online experiences with the brand similar to the ones in a store, and non-commercial communication. There were too many “recipes for success stories” and not enough authenticity.”, mentioned Ella Chilea, Partner, Audit & Assurance, Mazars Romania.
The Romanian luxury goods market is problematic, because it has to rely on local customers. On the other hand, in Milan, Paris, or Prague, foreign tourists represent a large percentage of luxury products consumers. Although the brands are present, the local customers have the largest share of the market compared to tourists.
Romania is expecting an economic slowdown, which will influence the luxury goods market to consider more affordable products and increase the spending power of many middle-class clients. This trend is set to continue as brands try to release less expensive options and focus their marketing strategy around e-commerce innovation.
The authentic online customer journey – a solution to improve profitability
Apart from the world health crisis, COVID-19 is a serious threat to this industry, especially if we talk about the GDP, the employment, and the financial markets, who are all under serious pressure. The acquisition of luxury goods and services by tourists will also continue to be disrupted by travel restrictions and a remaining fear of possible infections on planes and cruise ships. It is difficult to accurately predict the pandemic’s full impact on the broader economy and the luxury industry specifically, as its evolution and duration will depend on the response of governments and populations.
Different potential outcomes mirror a variety of presumptions regarding the period, the geographic extent, and the power of the pandemic, while alternatives cover the GDP forecast, the buyer confidence, and more macroeconomic indicators.
„Experts all around the world are working on different scenarios regarding the lost sales as well as the deferred impact of lower large scale orders, sales going down even to 35% (within the worst-case scenarios). In all the situations, the income would suffer a more abrupt downturn than the sales drop, because we are now discussing huge changes of the consumer behavior, flats over heels or reinventing the online customer journey.”, mentioned Ioana Maxim, Manager, Audit & Assurance, Mazars Romania.
When we think about the sales downturn, the closed stores, the unclear fashion forecasts as well as the changing consumers’ behavior, all brands are put in a tough spot and they are looking for answers to their questions. To improve their profitability, they can optimize investments, decrease costly inventory or develop new processes for distribution, supply, sales, and delivery.
Homo Economicus and the social purpose of the luxury brands
According to Mazars China, Chinese consumers are featured with strong capacity and high frequency of luxury consumption. Among the four generations of consumers, Millennials are the most stable consumers of luxury goods, and show the highest level of brand awareness and loyalty; Gen Z follows closely, and although their purchasing power is still low, they have the highest proportion of high-frequency consumers because of their inclination for over-consumption. Compared to other age groups, Gen Z’s brand loyalty is the most unstable, especially female Gen Z-ers.
Luxury remains an unchallengeable part of human life. No matter the age, gender, or social status, people all over the world aspire to some part of this market. The new generation of consumers is much more aware of the brands they look to invest in, just because they are searching for something familiar with their own values and vision of the world. While some people are going back to their roots, for others luxury supports their identity, it is something that perceives more than the function it provides.
Invited at the Mazars’ Forum in 2019, Li Edelkoort, one of the world’s most famous trend forecasters, mentioned that „It’s the younger generation which is going to change our world. You can feel it, you can see it, it’s happening and it’s incredible the way they are doing this.” There is a need to reverberating the shamanistic part of us, the link to the ancestors, due to the ocean of content that influences our lives daily.
Regarding the local fashion traditions, Li advises us to „Wear the traditional Romanian shirt. It is so fashionable that it has inspired people from all over the world and reached all corners of it.”
One of the most eye-catching particularities of the luxury industry is that spending is regularly based not on reasoning, but on emotions and feelings. While this unexpected challenge will undoubtedly have a strong impact on society, it is unlikely to affect the very roots of human nature.