The Luxury Industry: Strengthening Corporate Responsibility to Meet Volatile

Consumer Needs in the light of COVID-19

“Luxury goods is the only area in which it is possible to make luxury margins.”

 Bernard Arnault, owner LVMH

Introduction

From Louis Vuitton to Hermes to Estee Lauder, all the luxury brands have taken over
the world, changing the trend time and again. Forming an essential part of the glamour
and the exoticism of the world, the industry plays a crucial role in differentiating poor
from the rich and the rich from the richer. It exudes a sense of exclusivity. In FY2022
alone, it contributed USD 331.6 billion to the world economy. The world continued at
a certain pace, finding comfort in the old regimes of working and generating revenue
until COVID-19 hit, serving as the final push for industries to adapt. The virus
originated in China in 2019. Despite primarily affecting human health, it also
disrupted economies worldwide, significantly impacting them, in some cases leaving
its permanent mark. This paper will primarily focus on analysing the disruptions
caused in the luxury industry by the pandemic and will further on compare it to
its post-COVID condition.

Luxury Industry and its reaction to COVID-19

According to a McKinsey report, it was found that the Luxury goods wholesalers in
Europe and major North American luxury department stores were already facing
difficulties even prior to the pandemic. One reason for this was the luxury brands'
trend towards vertical integration over the last two decades. Another contributing
factor was the growth of e-commerce, which further exacerbated the situation. The
outbreak then contributed to the further decline in the earnings of luxury companies
by Q1 2020, with sales of major firms like LVMH falling by as much as 36% from
Q4 2019 (see figure 1).

Figure 1
 Despite the simultaneous decline in all such brands, there were considerable
differences amongst product groups in recovery rate demonstrating changed consumer
behaviour. The luxury skincare industry for one has mostly recovered and has
become more profitable than pre-covid with the exception of a few companies like
Shisiedo. Luxury apparel brands e.g, Louis Vuitton and Hermes were one of the most
brutally hit sectors however they were also the quickest to bounce back with revenue
generation being more than ever. However, it was the experiential luxury industry e.g.
hotels that couldn’t recover back to its pre-pandemic conditions owing to the travel
restrictions. Figure 2 represents the fall in products during COVID.

Figure 2

COVID has played a major role in affecting their world ranks through drastic changes
in supply chains, consumer behaviour patterns, expansion of e-commerce and even the
restrictions on travel. Figure 3 and 4 presents the sales of the Top 10 luxury goods and
its comparison with the revenue generated in FY2019 (respectively) to provide a
further analysis.
 Figure 3

Figure 4

COVID-19 has further disrupted the financial markets including but not limited to the
entirety of the stock market. Even companies like LVMH and KeringSA which are
 considered as stable stocks fell from Euros 423.65 to 314.90 and 610.20 to 405
respectively in FY2020. While this had several reasons, one major reason was the
distrust in the public about these luxury brand’s ability to adapt. However, as time
passed, these companies continued to adapt well and further reached new heights in
the stock market. Figure 5 and 6 demonstrate the same.

Figure 5- Stock of LVMH through 5 years (up to 13th March, 2023)

Figure 6- Stock of KeringSA through 5 years (upto 13th March, 2023)

Due to the pandemic, a large number of individuals were compelled to work remotely
and adjust their daily routines accordingly. As a result of these changes, there has been
 a significant and long-lasting impact on the way people work, with more people now
choosing to work both from home and the office. This shift has also led to a
remarkable rise in online shopping, with the percentage of personal luxury goods sold
online increasing from 11% in 2019 to 20% in 2022.
Until recently, many of the world's leading luxury brands refrained from selling their
products through online channels and instead relied on their own boutiques or third-
party retailers. The reason for this reluctance was mainly to maintain complete control
over their brand identity, and also because many brands lacked the necessary digital
capabilities to deliver the key elements of their brand online. However, during the
pandemic, most luxury brands began to focus more on their online sales channels to
make up for the closure of physical stores or limited shopping experiences. Some
brands, such as Patek Philippe and Rolex, permitted their retailers to sell watches
online for the first time. Others, like Chanel, opted to sell their products solely through
physical stores. Brands are reorienting their business strategies to meet the demands of
tech-savvy young consumers who seek personalized and seamless interactions with
brands. This involves providing omni-personal services that cater to individual
consumer needs and preferences.

The supply chains around the globe have been impacted heavily. Adding to the
problem is China’s zero-COVID policy that restricts the country and its financial
system by applying strict quarantine procotols on the country. Luxury goods
companies that rely on high-tech goods, textiles, leather goods, cars, and timepieces
from Chinese suppliers may face risks due to China's zero-COVID policy and
lockdown measures. China is responsible for over 30% of global exports in these
industries, so extended disruptions to trade could cause significant supply shortages,
as seen at the start of the pandemic.This may impact the ability of luxury goods
companies to increase investments in their supply chains. Moreover, restrictions on
economic activities in China could also affect exporters to China.The policy has
significantly curtailed outbound tourism, which is a crucial factor in the recovery of
the personal luxury goods and hospitality sectors for many countries, particularly in
Asia Pacific.
 INDIA AND ITS LUXURY GOODS INDUSTRY

The luxury products market in India is experiencing high growth due to a rising
disposable income segment and the power of technology. The growth is largely driven
by markets beyond major metros and a growing number of High-Earners-Not-Rich-
Yet (HENRYs) spending on luxury goods. The next few years will see increasing
growth and competition, especially in the "bridge to luxury" segment. Traditional
definitions and characteristics of luxury are evolving, creating new opportunities for
existing players and entrants. The sector faces challenges such as quality staff and real
estate, but many players are changing their business models or strategies to overcome
these. Investment in boutique stores by luxury brands in luxury malls or hotels or
forming joint ventures with local distributors is also on the rise. Indian players have
created a niche for themselves in the luxury segment by leveraging traditional Indian
strengths in areas such as arts, crafts, and medicines. To continue achieving growth,
the sector needs political stability, government support to address the barrier of import
duties, and stabilization of the Indian rupee versus the US dollar. India's luxury market
is currently experiencing significant growth, with a staggering 74% increase in the
luxury sector from 2010 to 2014. In 2021, the market value of Indian luxury goods
exceeded $5 billion, and it is projected to grow by an additional 10% over the next
five years. The COVID-19 pandemic has not hindered the recovery of India's luxury
industry, as luxury sales have grown in retail and travel categories. The number of
wealthy Indians has also significantly increased, with an 11% rise in people with
incomes above $30 million since 2011, expected to increase by 39% by 2026. Given
these figures, India has the potential to become a significant player in the luxury
sector in the coming decade.

LITERATURE REVIEW- Predictions and Insights of Industry Specialists

 Numerous industry experts have provided their opinions on the future of the luxury
goods sector. They believe that as the COVID-19 pandemic subsides, there are new
opportunities emerging for luxury companies related to the "green transition" and
circular economy. A joint study by BCG and Comité Colbert shows that a 65% of
consumers consider a company's commitment to sustainable development when
deciding to make a purchase. Additionally, the ongoing digital revolution of the
metaverse and Web3 is driving innovation and disruption in the luxury industry,
offering companies a unique opportunity to reimagine the luxury experience and build
brand loyalty through digital reality. The future of the luxury goods industry will
likely be more environmentally friendly and inclusive, with successful companies
adopting responsible business practices and a circular economic model. According to
a study conducted by Euromonitor, despite potential challenges, such as rising
inflation leading to reduced consumer demand, the luxury industry is expected to
experience growth, with estimates suggesting a 6% annual increase from €388 billion
in 2022 to an estimated €494 billion in 2026. Online shopping for luxury goods has
also become increasingly popular, with VogueBusiness predicting continued growth
in the luxury industry.

SUGGESTIONS
Due to the pandemic, consumers have reassessed their values and are now making
more conscious decisions about what they buy. In response, luxury and fashion
companies should give importance to creating value and affordability while also
considering consumers' key concerns. However, there is a rise in costs across the
supply chain, and luxury shoppers are now more cautious with their spending.
Companies can build stronger connections with consumers by offering sensory
experiences and highlighting qualities like quality, durability, tradition, and
craftsmanship. It is essential to use innovative and interactive methods to attract
consumers and encourage their loyalty. In such times, it becomes necessary to take
into consideration the wise words of the specialists and analyse it further. The way
further is only through a digitalised platform for shopping, stronger supply chains and
a drive towards a green economy and sustainability. Major brands like Prada and
designers like Vikki Jones have already started the pursuit of the same. Brands who
haven’t been able to recover should also consider M&A to restructure their company
and serve their customers with the best of the best. The brand should strive to explore
unpenetrated markets like that of India. India for one, has a lot of potential considering
its knack for spending. 4 out of the top 100 luxury brands belong to India. With e-
commerce coming into play, these brands can most definitely look for a strong
customer base within India. They can do so by analysing the trends and cultures of the
country and collaborating with the trusted luxury brands of the country.

Conclusion
Known for changing and setting trends, the luxury industry must strive fearlessly to
change the ecosystem of the present economy. None of the companies worldwide
could anticipate the pandemic and the disruptions it brought with it. Luxury brands
such as LVHM being one of the most trusted brands must make sure that they meet
the expectations of its trusted customer base and further on tend to their needs.
 COVID-19 has served as an opportunity for the strong to grow stronger and adapt to
the age of digitalisation better. While most companies have recovered, luxury tourism
is yet to do so, however, with the various opportunities presented to it via technology
and the developing economies of Vietnam and India, all brands will be thriving in no
time. In today’s fickle and fad-following world, only the ones that can ride the tide are
the ones who have a chance of survival.