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The Future of Luxury Post COVID-19

The Future of Luxury Post COVID-19

Welsh Consultants examines the changes confronting Luxury offerings post COVID-19- No one could have predicted how much of a reset 2020 would be for luxury brands. Yet, we all had seen it coming: The need for luxury brands to do some introspection and adapt to remain relevant in a fast-changing cultural climate and modern context. In many ways, COVID-19 is acting as an accelerator of the inevitable— changes that were already underway — for luxury brands. Relevancy has become the new legacy — Luxury brands should deliver a timely and timeless form of meaningful value and empower expressions of individual identities. Luxury brands must lean in and transform themselves from a brand-centric, controlled and confidential model to a moretransparent, engaging and customer-centric organisation.We can’t know with absolute certainty what will happen in the aftermath of the pandemic, but “Elevated Essentialism” will be one of the key themes to take centre stage in 2021 and beyond. This paper examines and explores the subject in detail.

Welsh Consultants examines the changes confronting Luxury offerings post COVID-19- No one could have predicted how much of a reset 2020 would be for luxury brands. Yet, we all had seen it coming: The need for luxury brands to do some introspection and adapt to remain relevant in a fast-changing cultural climate and modern context. In many ways, COVID-19 is acting as an accelerator of the inevitable— changes that were already underway — for luxury brands. Relevancy has become the new legacy — Luxury brands should deliver a timely and timeless form of meaningful value and empower expressions of individual identities. Luxury brands must lean in and transform themselves from a brand-centric, controlled and confidential model to a moretransparent, engaging and customer-centric organisation.We can’t know with absolute certainty what will happen in the aftermath of the pandemic, but “Elevated Essentialism” will be one of the key themes to take centre stage in 2021 and beyond. This paper examines and explores the subject in detail.

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The Future of Luxury Post COVID-19

  1. 1. THE FUTURE OF LUXURY- THE KEY TRENDS FOR 2021 1November 25, 2020 W Every year brings a long list of predictions and trends popping up in news feeds and inboxes around the world. But this time, perhaps more than any other year, we are all staring at the future, hoping to gain some insights into what our new normal will look like. The coronavirus pandemic transformed how we live and work in ways we hardly imagined at the beginning of 2020. The global crisis has forced millions of people to develop new ways of working, learning, shopping and well, living (more frugally). It may seem counterintuitive to be thinking about the future of luxury and discretionary spending in a time of looming financial crisis, as unemployment rate soars and even the world’s most powerful markets struggle to stay afloat. But amid the uncertainties and unknowns brought on by the COVID-19, one thing is clear: the pandemic has permanently changed, deepened and solidified consumer’s behaviours, creating new imperatives for all luxury brands. Luxury is often one of the first industries to take a hit in times of crisis, but it is also one of the most resilient sectors there is. The luxury industry, bouncing back more strongly than perhaps anyone could have anticipated after the previous financial crisis, is case in point.
  2. 2. THE FUTURE OF LUXURY- THE KEY TRENDS FOR 2021 2November 25, 2020 W No one could have predicted how much of a reset 2020 would be for luxury brands. Yet, we all had seen it coming: The need for luxury brands to do some introspection and adapt to remain relevant in a fast-changing cultural climate and modern context. In many ways, COVID-19 is acting as an accelerator of the inevitable — changes that were already underway — for luxury brands. Relevancy has become the new legacy — Luxury brands should deliver a timely and timeless form of meaningful value and empower expressions of individual identities. Luxury brands must lean in and transform themselves from a brand-centric, controlled and confidential model to a more transparent, engaging and customer-centric organisation. We can’t know with absolute certainty what will happen in the aftermath of the pandemic, but we believe “Elevated Essentialism” will be one of the key themes to take centre stage in 2021 and beyond. Affluent consumers are indeed increasingly aspiring to fewer but better luxury goods (or so-called “investment” pieces—with longer use potential and higher resale value) and relevant experiences. Luxury shoppers are willing to spend a premium for the very best version of luxuries that not only answer a need but have a real purpose and create added value in their lives and others.
  3. 3. THE FUTURE OF LUXURY- THE KEY TRENDS FOR 2021 3November 25, 2020 W The stories luxury brands tell will thus be more grounded in authenticity and inspire us to live more consciously. This emphasis on value-led experiences will create new opportunities to engage with affluent consumers by making a meaningful contribution to their lifestyles while driving positive change in the world. Consumer sentiment in the US and the EU will remain fragile until a proven vaccine for COVID-19 becomes widely available. Looking into the year ahead and the long term transformations rather than fleeting trends and buzzwords, two broad sets of trends that will be shaping the luxury industry in 2021: Business First Responses: Fast-changing consumer behaviours and expectations led by the COVID pandemic and the lifestyle changes that result of it. These responses are critical but are also highly time-sensitive and volatile. 1. Systemic Macro Trends: Underlying macro trends that we’ve observed for the past few years, some of which have accelerated due to COVID-19.
  4. 4. THE FUTURE OF LUXURY- THE KEY TRENDS FOR 2021 4November 25, 2020 W Business First Responses In face of the global pandemic, many large luxury brands quickly stood in solidarity with their community, pivoting to address urgent public health needs. Some (like Richemont Group and Ralph Lauren) provided financial contributions to hospitals and not-for-profit associations. Others (like Bulgari, Armani Group and LVMH) converted their production sites to help produce hand sanitisers, hospital gowns or face masks. But beyond these immediate reactive initiatives, luxury brands will continue to further adapt their answer to their customers’ most pressing needs by revamping their product mix and service delivery in alignment with today’s new reality. 1. Home Sweet Hub The luxe linens and home brand Parachute launched a limited edition loungewear collection in September 2020. Danish fashion brand GANNI launched a collection of off-duty pieces and leisurewear made of recycled materials in October 2020. Beauty skincare brand Tata Harper has turned some of their best luxury spa facials into try-it-sized kits to experience at home. Luxury brands — the digital-native DTCs in particular — will continue to reactively launch more casual options and everyday luxuries but also adjust their marketing in step with changing consumer behaviours to suit the new stay-at-home lifestyles and homebody mindsets better. The rise of loungewear and the casualisation of luxury fashion were already set in motion pre-COVID. However, the global pandemic has caused demand for the cosy, comfortable and comforting to skyrocket and expand. Burberry has added a dedicated “Home Comforts” section for gifting, and Ted Baker has been advocating self-care through its #StayHomeWithTed, an online hub featuring everything from loungewear and beauty products to downloadable Zoom desktop backgrounds and online activities. It can be expected to see more brand efforts to boost at-home ambience and personal wellbeing as people continue to seek comfort in uncomfortable times.
  5. 5. THE FUTURE OF LUXURY- THE KEY TRENDS FOR 2021 5November 25, 2020 W 2. Convenience to the Core From Lancôme to MAC, Chanel and bare Minerals, most prestige beauty brands are now offering some sort of virtual try-on feature on their ecommerce site. DTC luxury brands are also proving very reactive when it comes to providing more convenience and facilitating their adoption by new affluent consumers. Luxury footwear brand KOIO for example, launched a “Home try-on” option prominently displayed on their website in response to their store closures. This gives customers 30 days to decide to keep their sneakers or return them at no additional cost. It can be expected to see more initiatives of this kind until the dust settles. Systemic Macro Trends Despite all the volatilities, in the year to come, we expect luxury to be, in fact, primarily shaped by the acceleration of macro trends that were already taking shape pre-pandemic. Macro trends are driving forces that are gradually and more fundamentally transitioning the luxury landscape toward the new luxury paradigm. The global pandemic is speeding up this shift, acting as a catalyst. But countries and sectors across the world are experiencing it at different rates. In Europe and the US, uncertainty is still running high and could remain this way well into 2021. How long these feelings of uncertainty will last is the million-dollar question. In Asia, on the other hand, we are observing a more reassuring rebound. From a public health and fiscal-policy standpoint, most countries in Asia have indeed been more successful than the US and Europe at minimising the destructive impact of the pandemic. Four key transformation pillars (and their underlying trends) are worth keeping in mind in 2021.
  6. 6. THE FUTURE OF LUXURY- THE KEY TRENDS FOR 2021 6November 25, 2020 W 1. Agile and Young Millennials and Gen Z are driving the majority of luxury sales. These new generations of younger (but certainly not less demanding) affluent consumers will continue to rewrite the rulebook of the once bulletproof luxury industry; with new needs, new behaviours, and digital-infused lifestyles. As younger consumers become the largest segment of luxury buyers, it is a necessity for luxury brands to understand how to relate to and win over these young generations. They are digital natives: they continuously engage with online content and are expecting highly sophisticated digital experiences. Think of brands such as Apple that spend millions on user experience and design. For luxury brands to remain in sync with younger global luxury consumers, they will need to adapt their approach to speaking their language and deliver digital experiences that are superior to what’s already available.
  7. 7. THE FUTURE OF LUXURY- THE KEY TRENDS FOR 2021 7November 25, 2020 W 2. Digital Universe Many luxury brands have been slow to embrace digital channels, but in light of the unprecedented times we’re living in, and with more people ready to make high-price purchases online than ever before, luxury brands had no choice but to catch up. And quickly. Yet, digital luxury remains far from mature, with brands still experimenting heavily with different approaches to build awareness, boost engagement, and, ultimately, drive sales online. The last months have seen more digital transformation implemented than the previous decade, and processes that were already underway found themselves accelerated, and at scale. This digital transformation trend will continue to grow in 2021. While experiential in-store retail will remain essential for luxury brands, digital channels will continue to evolve both as sources of inspiration and as sales channels – elevating ecommerce to a new level. The end of COVID-19 will most likely rebalance the scale in favour of offline purchases. We expect, however, the pandemic to leave long-lasting consumer shifts with more people willing to buy online, including high-ticket items such as luxury watches, jewellery, and designer furniture.
  8. 8. THE FUTURE OF LUXURY- THE KEY TRENDS FOR 2021 8November 25, 2020 W 3. Purpose is the New Product Luxury brands are inherently of the highest quality. This excellence in craftsmanship is earned and should consistently be delivered. Beyond a high-quality product, though, luxury brands will have to not only display strong values but deliver purposeful actions and build a sense of close-knit community to gain the trust of discerning, conscious consumers, and forge deeper connections. Sustainability as a Status Symbol In June 2020, Gucci released its first experiment in circularity, Gucci Off the Grid, a line of accessories and streetwear made from recycled, organic, bio-based and sustainably sourced materials. Luxury consumers continue to become more environmentally and socially aware, so becoming more diverse, more inclusive, and more sustainable and ethical will be non-negotiable – Even in Asia, where status symbol and social capital are still traditional motivations for purchasing luxury for many first luxury shoppers. Luxury has been flirting with sustainability for years now. However, growing environmental, social, and governance concerns will put the luxury industry’s sustainable efforts under heavier scrutiny– reinforcing the need for luxury brands to become more trustworthy by providing more transparent information about their processes and products. Resale Revival We will continue to see resale adopted by more established luxury brands. Following the steps of Burberry and Stella McCartney, Gucci announced a partnership with resale seller The RealReal in October 2020, hinting that the relationship between luxury’s primary and secondary markets is set to continue to grow in 2021. And the formalisation of resale won’t only happen online but in-store too. Richard Mille Asia, for example, launched the first The Value of Time boutique exclusively selling pre-owned timepieces in Singapore in 2020.
  9. 9. THE FUTURE OF LUXURY- THE KEY TRENDS FOR 2021 9November 25, 2020 W Wellbeing as Wealth The uncertain times brought by COVID-19 in 2020 has given the already booming wellness movement a healthy push. Affluent consumers realise that wellness and in particular wellbeing is the real wealth. For luxury brands, it means adapting their products and services to accommodate the growing wellness considerations of their affluent consumers. It also means having to rethink their marketing – communicating their wellbeing credentials in authentic ways and empowering people to subscribe to a healthier, refined way of living. 4. Consolidation Constellation vs Flying Start-ups The pandemic has disrupted both the supply and the demand for luxury brands. For some brands, the crisis poses an existential threat. However, there will also be winners among independent luxury DTC brands. Digital adoption has indeed empowered the emergence and growth of new brands, new concepts, new nuances of luxury. The rise of these new disruptive direct-to-consumer brands means more competition for luxury consumer spending (for brands) and access to virtually endless luxury alternatives (for consumers). In the year ahead, consolidation of the luxury market will most certainly intensify once we exit the crisis, leading to an increasing polarisation between the luxury groups and the rising stars of the luxury DTC world. References • Fast-forward China: How COVID-19 is accelerating five key trends shaping the Chinese economy, By Nick Leung, Joe Ngai, Jeongmin Seong, and Jonathan Woetzel, McKinsey, May 2020. • Farfetch, Alibaba Group and Richemont Form Global Partnership to Accelerate the Digitization of the Luxury Industry, Farfetch, November 2020. • The Armani Group and YOOX NET-A-PORTER GROUP come together to design distribution model for the future, YNAP, July 2020. • Amazon Announces New Shopping Experience, Luxury Stores, Amazon, September 2020. • The RealReal and Gucci Launch Circular Economy Partnership, The RealReal, October 2020.

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