The year after 2020

Some thoughts on why Covid-19 is disrupting luxury fashion much deeper than just postponing the next collection. There will be definitely a before Covid-19 and an after Covid-19. Here is what is really happening...

Covid-19 is a human and economic tragedy. While news are dropping with retailers closure or cash shortage, luxury sector economists and experts have been feeding us recently with rational comparisons of Covid-19 with 2008 Srars, or even looking backwards to older virus like the Spanish flu or the Mers flu. There is a compulsive need for this kind of comparison, to make sure we all remain positive and optimistic for the future, a given in fashion.

Those experts usually share 2 visions : 

-      “Money always comes back” : Covid-19 is not as dangerous as it seem as only 2% of people are actually dying. The scenario is as followed: revenge spending will drive luxury to recover very fast, stock market will go up again, as luxury is Wall Street driven, money will flow again, customer queues will resume at the highest end Brands selling 5 figures handbags and by transitivity, all brands will follow.

-      “Timeless luxury dynamics” : scenario is to compare Covid-19 with what happened with the previous virus Srars when luxury was hardly hit : as last time, luxury sector will not decline, may be flat with zero growth as the worst situation. As in many books written on luxury, luxury markets are crisis-proof versus non-luxury markets. This is backed up by the history data after Sras and this could be even more true this time, as the demand is higher with more customers educated to luxury, the world is smaller and China is a much bigger economy than 12 years ago….

So be it. Let ‘s pray (from home) for one of the 2 scenari to happen.

Actually last week, pictures of Chinese customers queuing again at Chanel in Shanghai Plaza 66 were posted. So this is already happening : China is recovering and Brands will be soon posting double digit growth….Unfortunately, I guess no. Chanel is one of the 3 global Brands running after the 10 billion euros mark and who has been building its brand equity step by step for the past decades with stable ownership, stable management and stable artistic direction. How many Brands could show such a history ? Comparison with Chanel is unfortunately not relevant….

Having worked more than 20 years in the luxury market, I am passionate about luxury and fashion. In line with some of my peers, I feel luxury is not going back to normal in a couple of months as nothing happened nor is going to show a recession proof profile.

Why ? because luxury has been hit for the first time (and this is totally new versus Srars) 4 times : on its creation resources, on its supply chain, on its distribution organization and on its customer strategy.

1-    Creation is one of the most strategic resource a luxury house has : chief creative officer, designers, modelists, prototypers, etc. To get inspired, creatives need to travel, to meet trend setters and bloggers, to work and collaborate with cool people and cool brands, visit professional fairs, mostly in Italy and in France. Not to mention the shared anxiety of being locked down or the fear to be exposed to coronavis involving a high level of stress…. All this is at the opposite side of a creative foster environment. The creative forces will find difficult to resume short term. Most brands announced the cancellation of Cruise 2021 in May… it is not only the show which is cancelled, it is the collection… and it used to be the biggest of the year. June men fashion show in Milan and London have been announced cancelled as well. Even if Brands keep it limited and very commercial, who is going to come ? who is going to come with an Open to buy when we hear Neiman Marcus could feel for bankruptcy ? even for brand owned boutiques , how can we calculate an OTB with the amount of stocks already owned ? (Summer 20 delivered but no customers to buy, Prefall 20 partially cancelled but largely delivered in logistics centers). Provided we can resume working as before in June, and teams working June/July/August (forget the Riviera in August…), we can assume the next collection to resume a proper creative work is Summer 2021 presented in September and delivered in March 2021. A year from today. That is the impact we are dealing with : minimum one year.

2-    Supply chain from sourcing to transportation is totally disrupted. The prestigious “Made in Italy” and “Made in France” labels are the corner stones of many Western luxury Brands who have been shutting down their factories in France and Italy, especially damaging their capacities for leathergoods (the money maker) and for shoes (the new money maker). Not to mention raw materials like the leather skins… 100% tanned in Italy for most of Brands. 

For Brands who made the choice to source in Asia, for their products, for selected components (buttons or shoes stitched abroad, finished product made in Europe), or whether they select Asian partners only for their outlet distribution, they will suffer from a lack of products and they won’t have the organization nor the pricing power to support a made in Europe come back. Not to forget the transportation issue : no more planes available…. Sea option will be too slow to refuel markets…

Hence, we are dealing with factories which need to be paid for previous deliveries from Prefall 20, who have to deal with sporadic orders from Winter 20 … up to no orders for that periode, who have been closed for 3 months… and anyway retailers who can not accept more merchandise as they are closed or overstocked…. Meaning more cancellation and disruptions for factories. Hence, best estimate for a back to normal supply chain is first term 2021.

3-    After decades to focus mainly on the brick and mortar organization (when one pays the highest rents on the planet, with the best trained staff, one has to focus on getting its network profitable) or to apologize they cannot find a way to deliver the same level of service on line than in boutiques, brands are rushing now for better digital solutions. This is happening not because they decided to embrace Gen Z desire, but because they need to offset revenue loss caused by the virus and because ecommerce does not imply physical relationship (at least between client and sales attendants). In a rush, Brands decided to partner with e-commerce channels, formerly blamed for being unable to deliver the right brand customer experience. Suddenly Tmall, JD.com, Little red book or Secco became to their eyes great partners to sell the old/new collection, above all huge stocks (3 to 4 additional months of stock to add to the usual 5-6 equal 8-10 months of stocks) and launch  “see now, buy now, cash now” digital initiatives.

The current crisis will accelerate the move to digital in all aspects. Customers will get more used to working remotely, browsing, and shopping luxury online. Digital is already the number-one purchase decision channel, and its importance will grow exponentially as a result of current events.

Apart from digital, the balance of the retail network will be hit. The impact of less tourism or a different tourism will redistribute business for Brands equipped with massive flagships to host the millions of Asian customers visiting Europe, with myriad of travel retail doors in airports and with huge outlets in Italy and in US. Tourism will not disappear but if Chinese can buy properly on line, with the proper experience and anyway can visit their mainland boutiques, they may not need to go for heavy shopping when abroad. The crisis will probably accelerate this move.

4. Customer relationship may be the place where change could happen the strongest. Actually, due to Covid-19, the world became real time, more sophisticated and more intelligent. 

-       Real time as we started to track virus evolution daily, all over the world in real time, with no technology barriers nor government regulations. All this was real time, live, worldwide, constantly updated. Per consequence on customers, livestream marketing, used so far in mass retail became mainstream for luxury. This is a change : instead of discovering collection and wait for 5 months to buy it, one has now access to price, stocks, product information and styling recommendations….live. I doubt many organizations have already set up information technology to match that.

-      More sophisticated because the #1 customer, ie Chinese, may change his/her priorities and expect more than just buying the product. Helping others, taking care of the family, cooking, sustainability became really trendy when locked doxwn. Some key Chinese bloggers are posting videos on their kitchen appliances or on cooking recipe. Imagine Chinese customers cutting spendings on sneakers, handbags, or branded tshirts to spend more on travel, fine dining, and high-end leather accessories…

-      More Intelligent and discerning because the most technology advanced countries have shown the world they were able to track mask stocks in real time per each pharmacy door…. Being out of stock for a product and coming back to the customer the next day may be something of the past.

To understand these rapid shifts in consumer expectations and building better relationship with customers, luxury will need to invest in more sophisticated digital tools that use artificial intelligence, and real time social media. From now on, the mistake on the product, on a culturally not acceptable message, PR apologies or wrong tone will not be allowed any more. 

The Covid-19 is a game changer for our industry as it impacted key areas of the luxury value chain : creation, supply chain, distribution and customers. 

I feel the “always more” may be the opposite of the luxury world of tomorrow, especially under cash and supply shortage : fashion may skip one full season, collections number may reduce (who needs Cruise in October and a additional transitional collection to complement and wear now ? who needs pre-collection and pre-pre collections ?), distribution network may changed (who needs so many pop ups in front of its own flagship ? who needs to buy a Brand in 3 adjacent / within walking distance department stores? who needs to find the Brand in every single airport when travelling ?) collection size may reduce (who needs to review 90-120 looks to understand the seasonal message of a Brand ?), purchase may re focus on added value / really new items (who needs an additional message hoodie on top of the 5 already owned ?), Brands may invest more on digital rather than opening boutiques

I am not pessimistic. This game changer can be the foundations of new opportunities around more creativity (one always die for a highly creative piece), more quality (luxury is an investment and real quality is never cheap) and better and more authentic customer relationship (going beyond cross selling and Unit Per Transaction).

There will be definitely a before Covid-19 and an after Covid-19.

2020 could be the worst year for luxury, but could be also the best starting point to really get our feet in a modern 21st century