Is the Luxury Industry Immune to Financial Recession?
What impact a looming recession will have on the luxury business?
Hello readers!
Since the coronavirus outbreak in China at the beginning of 2020, numerous luxury companies have been in a fishbowl for the past months: some of them immediately felt negative effects and reported losses in the Asian market, however, the true nightmare started to unwrap following Milan’s Fashion Week (both topics were covered earlier in my previous posts).
It has since become a black swan event, and last week IMF declared that the global economy has entered recession as a result of the COVID-19 outbreak.
This week we’ll explore what happens to luxury in an economic downturn.
The Outlook for Luxury Brands Remains Uncertain
As reported by Vogue Business, the global personal luxury goods market dropped by 9 percent during the 2008 financial crisis but recovered quickly thanks to the rise of luxury goods consumption in China.
The luxury sector held up in past crises, however, this time the situation is dependent on the interplay of multiple factors and is far more complicated. According to WWD, Bain forecasts the luxury market to contract by 25-30 percent in the first quarter of 2020. The pandemic has disrupted both the supply and demand side of the luxury industry, posing travel restrictions and “freezing” the global economies.
Recommended reading: Luxury business, while resilient, likely to contract $66B to $77B in 2020
Luxury Consumer Behaviour During a Crisis
Earlier this month, “revenge spending” spiked in post-quarantine China. However, analysts report it’s unlikely to make up for all of the lost sales. Indeed, as reported by WWD, the majority of Chinese consumers are planning to cut back their spending on non-essential items, such as luxury handbags and apparel, overseas travel and entertainment in 2020.
Related reading: Is the luxury industry threatened by China’s inflation?
Emotions play an important role in luxury goods purchasing. Post-2008 financial crisis some consumers were feeling embarrassed by what they “have”, experiencing a so-called “luxury shame”. This phenomenon has given a rise to “mix and match” trend:
If before the crisis, wearing a Zara shirt with an Hermes bag was seen as fashionable and trendy, the […] crisis has made mix and match as a defining trace of consumer behaviour. It is no longer regarded especially fashionable to mix and match and consumers are adopting this as an essential part of their shopping habits. The mix and match trend is […] being reflected differently, in two directions, one which is “anti-luxury” and the second being “vintage”. While the “anti-luxury” trend is more embraced by consumers in mature markets, especially in Western Europe and the U.S.A, the “vintage” trend has been gaining ground in emerging markets.
When purchasing higher priced items, luxury consumers are also looking for “value” and “investment pieces”, things that last. There is a move towards pieces that are classic, more subtle and conservative:
“Quiet luxury is not centred around the logo, or showing off wealth and status. Instead, it’s all about the beauty, quality, and craftsmanship of the product. Think Hermès, a luxury French brand synonymous with understated opulence where products run into the thousands, but only those with a trained eye will recognise the brand’s prestigious items. For quiet luxurians, it’s all about spending large sums of money to look anonymously chic.”
Despite the economic recession hitting the luxury sector, according to Jean-Noël Kapferer, it does not mean the end of logomania, bling-bling, and opulence. In 2010, in his article titled, “Luxury after the crisis: Pro logo or no logo?” the author argued that:
Luxury is tied to the social hierarchy. Premium goods are just better goods: they are the best in class products, after examination of their comparative performance. Luxury is elsewhere. […] No other industry but luxury delivers status to so many people. […] Everyone can build his/her own prestige vis-à-vis his /her immediate social network by having the right objects, signalled by the right brands. […] The need for status calls for well-known and visible brands. Depending on the reference group of your status need, you will choose different brands, known by different people, sometimes by only a few of them only.
Related reading: As a Global Recession Looms, Quiet Luxury Returns
While both aspirational and affluent consumers start to rethink their consumption habits while on lockdown, one thing is clear — health and wellness are the ultimate luxuries.
Thanks for reading and stay safe,
Asia Assanbayeva
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