Originating from Wuhan, China, the Corona Virus pandemic struck the world on 31st December 2019. What initially appeared to be a localised affair, it quickly spread its wings to Italy followed by Spain, France and then rest of the world. As per Wikipedia, the first case of the 2019–20 coronavirus pandemic in India was reported on 30 January 2020, originating from China. Fortunately, the state swung into quick actions by restricting inbound flights, suspending cross border movements and announcing lock down 1.0, 2.0 and 3.0 in continuation. All malls, restaurants, cinemas, worship centres and public transport were shut down as well.
How did Indian luxury respond and react to such a situation? How is it preparing itself for the post lock down era? How are brands, customers and organisations gearing up to tackle the post pandemic era?
The Indian Luxury Industry has been on a growth path. Growing consistently at a pace of 20-25% PA for past several years, it was projected to touch $180b by 2025. Growing number of HNI’s, rapid urbanisation, emergence of suppressed consumption demands at tier II and tier III cities, over supply of information have been some of the demand drivers. As per a report by Statista, revenue in the luxury goods market amounts to $9.09 billion in 2020. The market is expected to grow annually by 5.8 percent (CAGR 2020-2023). With a market volume of $3 billion in 2020, the market’s largest segment is prestige cosmetics and fragrances.
Impact on luxury business & its Longevity.
Majority of the customers are waiting and watching. There is an air of uncertainty, despair and helplessness. In the short run, the impact of this lock down and corona virus is extremely negative. Most feel that the negative impact will continue for some more time even after the lock down is over. Depending on when the market normalises with respect to mall and store re-opening etc., the expected drop in business in the year 2020 is likely to be in the range of 30-50%.
Impact on personnel employed by the sector.
A large number of brands have been humane and compassionate with their staff. Most organisations are in a mode of ‘work from home’. Others have also resorted to salary cuts at all levels. Only a handful have asked their teams to proceed on unpaid leaves on furlough and a very few have resorted to retrenchment and downsizing.
Worst and Least affected sector
The worst affected sectors have been those of automobiles & real estate, whilst the least affected ones have been the beauty & skin care along with wines & spirits.
Fastest and slowest sectors to bounce back
The fastest to bounce back would be beauty & skin care along with wines & spirits. Those which will be the slowest to bounce back will be sectors of automobiles and real estate.
Changed consumer behaviour
Conspicuous consumption is likely to be replaced by conscious, responsible and sustainable luxury. Brands can no longer just skim the surface and will perhaps need to take sustainability in a more serious manner.
Logo driven consumption may be temporarily taken over by subtle, logo less designs and styles. Elegance & sophistication will be the new bling.
Fast fashion may see a dip – customer will choose quality over quantity. Slow fashion meaning luxury fashion, accessories can see a revival.
Can a spurt in spending be expected post the lock down period?
Which sectors will take the lead?
A spurt in luxury sales can be anticipated immediately after the lock down. Pent up demand in non-essential yet extremely relevant sectors like beauty, wellness, skin care, salons and fitness will see a growth. Revenge shopping phenomenon can & should be anticipated.
The lip stick effect will surface strongly where beauty products will see an uptick. Due to the need to cover your face with a mask, the lipstick will be replaced by an eye liner or mascara.
The social need to hang out, socialise & party with friends will drive consumers towards entertainment, hangout zones, wine and liquor sales etc. Cautious approach of course will precede these decisions.
Will retail tech play an important role?
Accelerated digitisations across service and business models will become a necessity. Technology will penetrate all aspects of our lives from retail to health care to travel to banking. Contact less service, digital banking & payments, artificial intelligence, augmented, virtual and 3D reality will become a part of our lives.
Digital medium will need to be adopted beyond just social media to now digital commerce by luxury brands
How about the newer models of sharing/re-usable/rent a luxury etc.?
Sharing economy, re-usable luxury and rent a luxury could face a down turn due to hygiene requirements.
Automobile industry may see an upturn due to reluctance of usage of uber and ola shared cab services.
What are the anticipated newer models on the horizon?
Business and service models across sectors will get affected and remodelled basis the social distancing norms.
Passengers allowed per car may be redefined.
In aviation, reduced number of passengers will result in newer seating arrangements & costs.
In physical retail, lesser number of staff, serving lesser number of clients, will necessitate a new lay out.
In fine dining, service by appointment and social distancing may reduce service capacity to 25-30% of existing formats.
A volatile & sluggish economy, changed consumer expectations and digitised retail model could be the new challenges for luxury brands.
The state will play an important role in the setting of sanitation and hygiene standards.
Like security checks, a hygiene check may become necessitated in confined spaces like malls, cinema’s, offices etc.
With all businesses and industries throughout the globe in massive chaos, there has been grave economic impact of corona virus across the sectors. Indian retail including the Indian luxury market have also been severely impacted by the extremity of the covid-19 Pandemic
Marketers across industries are trying to redesign their business models and the luxury industry is no exception. Although uncertainty looms large, all possible sectors like fashion, beauty, automobiles and real estate and others are working towards how to sustain themselves. A wait and watch approach with a cautious optimism is in the air. A drop in the 2020 sales is surely assumed, but scenario building will firm up once lock down days are defined. It is believed that there will be an initial spurt in sections of entertainment, wines & liquor, dining, hang out and some shopping too. However new norms that may come into acceptance wrt social distancing may alter the service dynamics.
Overall markets have taken a hit, & a dip of 30 – 50% can be anticipated. Supply chains have been adversely affected. Most experts believe that a minimum period of at least 5-6 months should be factored in as a bouncing back time. Companies and brands are making a sincere effort to remain optimistic and are helping their employees by maintaining a positive outlook. Hygiene and sanitation has been taken up by companies and brands as an utmost priority. Retail tech will definitely come in the forefront and may become the new normal. New innovative techniques are being worked upon by the brands in terms of promoting a sustainable and conscious approach to luxury.
After the crisis gets over, the luxury industry remains hopeful to bounce back to previous consumption levels .This is the perfect time for luxury brands to prepare themselves for the future by identifying the gaps, turning their weaknesses into strengths and strengths into distinctive competences. Retail tech will grow at a fast pace as new technologies will have to be introduced in all possible sectors of luxury to face the “new normal.” This pandemic may bring a major change in the consumers’ mind set and the value system that underpin their their luxury buying decisions. People will become more responsible and cautious towards their luxury buying and will expect a lot from brands which will lead towards sustainability. The brands that would work to understand this and adapt accordingly will surely turn out to be the new champions.
Industry collectively believes that our country and its people have strong fundamentals, by following optimistic approach as well as a positive outlook we will be fine and within no time we will be back in action.
After all, luxury is crisis resistant and will bounce back in a new, more candid format.
Credits: The above Research inputs are summarised from a study by the author, ‘Corona Virus and its impact on Indian luxury’. The full and complete report along with graphs and details is available as an E-book extension on pre-launch purchase of The Incredible Indian Luxury Bazaar.