When the global COVID-19 pandemic ground the world to a halt more than year and a half ago, luxury brands were left scrambling to deal with a number of problems on several fronts, from multiple store closures and re-openings to the acceleration of their e-commerce strategies, each issue demanded solutions that have helped reshape the luxury landscape into what is now known as the “new normal” for the industry.
As it begins its recovery, the luxury market is expected to reach between €250-€295 billion – according to the latest update from Bain and Altagamma – and one bright spot has been the acceleration in repatriation and domestic spending on luxury, particularly in China which represents 20 percent of global consumption and where most of luxury’s growth is expected to come from in the next few years.
This focus on domestic consumption, from customers who are limited by restrictions on international travel to destinations like Paris, Milan, New York or London and who have instead chosen to spend on luxury closer to home, is something many brands have capitalised on during the pandemic with more localised marketing activities targeted specifically towards customers eager to spend their wealth but nowhere to travel to.
Indeed, the latest quarterly results from many of luxury’s leading brands and companies show that repatriation is driving the market’s bounce back to normality. Hermès recorded a 44 percent increase in consolidated revenue of €2.1 billion, at constant exchange rates, thanks in large part to the strong performance from Asia and Japan and the upturn in the United States.
Likewise, LVMH posted a 32 percent rise to €14 billion in the first quarter, compared to the same period last year, buoyed by the strong growth in Asia and the United States, while Europe still remained affected to the impact of store closures and the suspension of tourism.
Growth in the luxury market is, at present, local. But what happens when the world reopens its doors and travel is no longer limited? Will brands continue to focus on promoting themselves on a local level, or will they return to the overarching global messaging needed to maintain their dominance as leading luxury brands?
For some, the delayed nature of the global recovery remains the biggest issue that luxury brands will face, meaning that a focus on local activities for now will remain a priority in the coming year. “From a global perspective, it's going to definitely take a staggered perspective of when to market, how to market, and when the recovery will emerge,” said Marshal Cohen, chief industry advisor at The NPD Group.
On the other hand, the nature of the recovery and the travel restrictions has meant that Cohen has seen activities on a local level perform well, particularly with the help of e-commerce. “It was very interesting to watch the local market recover at a faster rate than the global market,” he said.
Another point that luxury brands have had to consider in the new normal, is where their consumers are, particularly given how suppressed travel has been since the beginning of the pandemic. “A lot of people would often discover or buy luxury brands during travel trips to the big international cities, and whilst there, they might also buy some whilst doing international travel in airports in the boutiques within the airports. That has really been turned on its head,” said Neil Saunders, Managing Director and Retail Analyst at GlobalData Retail.
“They've almost had to devise strategies to go to those consumers rather than expecting the consumers to come to them,” he added. “Local marketing has definitely become more important and I don't think anyone necessarily has a solid strategy for it, but it's certainly something that is more significant.”
And not only do brands have to think about where consumers are physically, but also the best way to reach them. It comes as no surprise that where they immediately headed to was online. From shoppable live-streaming, augmented reality try-on tools, and branded virtual worlds, there has been no shortage of investment in marketing activities aimed at engaging consumers online. Equally, many brands have channelled their focus towards their customer relationship management programmes embracing the connection that technology enabled them to speak directly to their consumers through direct messaging, virtual store-visits and showrooms as well as private virtual events for exclusive customers.
“The leapfrog forward that the digital environment provides the online business from the luxury market has exploded, and that levels the playing field,” said Cohen. “So, even with the lack of travel and tourists, and even with the sluggish nature of recovery for different countries, the online piece of the puzzle has allowed that market to actually sustain the level that they were having the pre-pandemic, for some businesses.”
Another point to consider is the balancing act required by brands to ensure their local activities and their global message are aligned. “It's a fine line between going too far and getting too acculturated into the country in which you're selling the product because in some cases the cachet of the luxury brand is the extension beyond your local market,” said Cohen.
“You've got to bring a little bit of both,” he continued. “You know you want the product that fits, and the product to be the right climate, but you also want the product to still have the distinguishing characteristics of its origin, so you can't stray too far from your roots, but you do want to make the product localised and applicable to the consumers use.”
“There's a real balancing act between trying to localise the stickiness and the meaningfulness of a brand, but still having a global image and a global stance, said Saunders, noting the rise of more local cultural and political sensitivities. “This means that brands have got to think about how they localise marketing and communications more. And that's really challenging because for a lot of brands, they do have a global footprint and a global image, and with the internet, it's very difficult just to create localised content that stays local.”
Looking forward, Cohen believes that brands will need a mix of both local and global activities to succeed despite the industry’s reticence to embrace a more curated and focused perspective on their customers.
“The majority of businesses, luxury or not, are going to fall back to their old ways,” said Cohen. “One year's time to redefine their business, without the ability to grow, was not a long enough transition to be the catalyst for them to be able to say, okay we're going to be completely different.”
“I'm already seeing many of the businesses, luxury and not, all fall back to their traditional ways, they may have. They may have held on to a little more digital growth, online business, but they still haven't expanded their business models by much at all. And in part it's because it's too soon to tell where it's going,” he continued.
“I would hate to see us lose the localisation that we've just gained, because it's such a great part of the personality of brands and retailers,” Cohen added. “I also recognise the need to grow back through the global perspective, it's going to be very hard to grow with just the local focus.”
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For Saunders, he believes as the world becomes more globalised, a more local approach will emerge. “The world is becoming more polarised in terms of its values. It's becoming more insular and I think that its kind of retreating a little bit into localness. And that's the kind of big macro level picture that I think will apply to brands… people want to be more connected to communities. The pandemic has just made people feel very buffeted, very insecure and we have seen the rise of local, as people use local shops, more people are shopping more locally and people are tapping into more community events.”
“The upshot for brands is that they need to introduce more localisation into what they do,” said Saunders. “For luxury brands, that is difficult, because one of the things that luxury brands like to do is they love to control because they have a brand image and it has to be consistent and it has to be controlled from the centre and often there's, you know, a few key people that make the decisions.”
“These are very, very centralised companies, and it's very difficult for them to let go, and allow a degree of localisation, but in some ways, I think that they have,” he added. “Even if that's all driven from the centre. Because the world is becoming far less corporate, far less uniform.”