Pandemic Continues To Dull Allure Of Luxury Goods

COVID-19 continues to take the shine off luxury goods. Despite some signs of improvement this month, LVMH, the world’s biggest luxury goods group, admitted that its brick-and-mortar sales were erased by lockdowns across Europe and the United States in recent months, and that an immediate turnaround was unlikely.

“We can only hope at this point for a gradual recovery,” LVMH Chairman Bernard Arnault told investors on an online call Tuesday (June 30). However, Arnault said there were “quite vigorous” signs of recovery in June as lockdowns lifted in the EU, including the major shopping hubs Milan and Paris.

It comes after Chanel, the second-biggest player in the luxury sector behind the Louis Vuitton owner, said earlier this month that the industry had faced a “difficult” two years. Chanel has been sparse on specifics of the company’s sales, but Finance Chief Philippe Blondiaux told Reuters that a strong recovery in countries where the group’s shops have reopened could not make up for the lack of international travel, which has fueled luxury goods sales pre-pandemic.

“We anticipate that the external environment will continue to impact the luxury sector negatively for at least the next 18 to 24 months,” he said in a phone interview after the group reported its most recent earnings.

The pandemic is likely to hit demand for luxury goods hard, with tourism expected to be in a downturn for some time and the Chinese economy having slowed after driving substantial growth in recent years. Spending in Asia-Pacific on luxury goods is set to contract by 3.4 percent this year, a fall of $2.1 billion compared to 2019. That estimate comes from market intelligence company GlobalData, which predicts that total spending in the region will dip to $60.3 billion in 2020, compared to $62.4 billion in 2019.

GlobalData analysts say the closure of a number of luxury-branded stores across Asia Pacific makes a short-term recovery unlikely.

“COVID-19 has forced luxury brands to postpone their fashion shows and cancel promotions events, and has disrupted supply chains,” GlobalData Retail Analyst Suresh Sunkara said. “However, since the start of the second quarter of this year, several countries in the region, including China, Japan and South Korea, have lifted most of their lockdown measures to bring normalcy in their economies, while countries such as India have begun phased relaxation of lockdown measures. This will bring some relief to luxury retailers, as they can now open their stores and resume operations.”

Could the online surge help luxury goods? Some brands, including Coach, Bulgari and Ferragamo, are actively trying to keep up with the digital shift. But it hasn’t been enough to overcome substantial obstacles, as faced by LVMH and Chanel. Trade site Luxury Daily says eCommerce could be a source of quality customer interactions.

“More than ever, the demand for luxury brands to provide high-quality, bespoke customer experiences should be considered, whether in-person or online,” noted the report. “Indeed, poor customer service is the leading deterrent when buying luxury goods/services (53 percent), meaning that luxury brands have to create memorable interactions with consumers in difficult times, maybe through phone interactions or video chats.”