The COVID-19 pandemic that emerged from China’s Hubei Province in early 2020 was one of the fastest and widest-ranging disruptions to global life in history.
As well as catastrophic human cost of the virus, the emergency lockdowns imposed around the world led overnight to radical shifts in consumption patterns that accelerated underlying trends to a degree unimaginable only weeks before.
As the sector perhaps most exposed and responsive to shifts in consumer tastes and behaviour, premium lifestyle and fashion brands have been at the bleeding edge of these processes – and they offer useful indicators of how ‘sticky’ these transformations may prove.
As we’ll see, many are likely here to stay – and offer significant opportunities to both insurgent and legacy brands who can correctly interpret where their trend lines are taking the market.
There are ground-level insights, like marking the boom in loungewear at the expense of formalwear and the open question around what business casual will look like going forward, but let’s take a global view.
Here are the key takeaways we’ve gained over the last 18 months.
Chinese millennials: luxury’s global growth engine
Any analysis of any market has to factor in mainland China, given its sheer scale.
Crucially, the population bulge of Chinese millennials (those born between 1980 and 1995) are now coming into their peak earning years, representing 320 million consumers. Their successors, the Generation Z cohort, now count more than 80 million members older than 20[1].
This is a vast market by any standard, and the Chinese government’s relative success in controlling the virus has meant that companies who had already established footholds in the country have been able to successfully ride the wave of the country’s economic recovery.
A recent McKinsey report found that brands whose revenues were more than 30% derived from APAC as a whole enjoyed an average growth in market cap of 18% between January and August 2020[2]. This period correlates with the peaks of the pandemic globally, strongly indicating the resilience of the Asian market.
APAC, of course, includes not just mainland China but Japan, South Korea and Taiwan, but these are generally older societies and the vast weight of the younger generations in the People’s Republic mean that the resilience argument holds most weight in that context.
Purpose-driven branding stands out
Millennials and generation Z are set to represent 65-70% of the global luxury market by 2025 – that’s globally, not just in China[3].
This means that luxury brands, whose value lies in their ability to offer consumers a method to communicate about themselves (or, more prosaically, their marketing), must learn to engage with this market on its own terms and reflect its values.
The social disruption caused by Covid has placed notions of equality, identity and sustainability even higher in younger consumers’ minds.
Even before the pandemic, Nielsen found that 73% of millennials were willing to spend more on a brand with strong sustainability credentials[4] and a simple look at any social media platform will tell you that these concerns have only been magnified by the ‘great rethink’ prompted by the pandemic.
Indeed, this creates opportunities for insurgent brands who can respond nimbly and sensitively to cultural movements and socio-political trends. Last year McKinsey found that 61% of millennials and 51% of generation Z had bought more from lesser-known brands during the pandemic[5]– remarkable numbers at a time of great economic stress for many younger consumers.
If one expression of luxury is the notion of being a participant in cultural and creative excellence, we can clearly see these narratives converging into a generalised hunger from younger consumers for branding that expresses their care and concern for sustainability, and it is extremely difficult to imagine any plausible where this scenario is reversed.
Digital goes premium
In the face of the coronavirus crisis, digital transformation is becoming a major challenge for all sectors. The luxury sector, although traditional and elitist, is not immune to this new contemporary challenge.
A Bain study revealed that 23% of luxury products are bought online in 2020 against 12% in 2019 and that online sales will become one of the most important distribution channels for luxury products by 2025.[6]
This presents two opportunities to the luxury sector.
The first is a rationalised doubling-down on pre-pandemic trends toward enriching real-life consumer experiences. If physical retail is now on a downward slope, this means being realistic about the scale of store footprints actually required, but also adjusting and optimising the role and design of the store to deliver a truly premium experience that can’t be replicated on a phone.
Also, the blurring of the boundary between life online and ‘IRL’ means digital shopping must also be conceived of an experience.
This offers an opening to brands where they can harness technology to deliver a personalised experience akin to the ‘one-to-one’ service consumers can enjoy in a high-end store, whether artificial intelligence-powered recommendations, bespoke relationship management, or direct access to sales representatives via user-friendly communication platforms.
Whatever happens, we aren’t going to go back to the world of January 2020. As I hope we’ve shown, this is no bad thing, and the coming period carries huge potential and excitement for the luxury sector.
Mirabaud’s Lifestyle, Impact and Innovation Fund invests in pioneering companies creating the luxury experiences of tomorrow. Learn more here.
[1]www.statista.com/statistics/1101677/population-distribution-by-detailed-age-group-in-china/
[2]www.mckinsey.com/industries/retail/our-insights/state-of-fashion
[3]www2.deloitte.com/content/dam/Deloitte/pt/Documents/consumer-business/Global-Powers-of-Retailing/GPR2019/Report_GPLG2019.pdf
[4]www.nielsen.com/wp-content/uploads/sites/3/2019/04/Global20Sustainability20Report_October202015.pdf
[5]www.mckinsey.com/industries/retail/our-insights/survey-consumer-sentiment-on-sustainability-in-fashion
[6]www.bain.com/about/media-center/press-releases/2020/covid_19_crisis_pushes_luxury_to_sharpest_fall_ever_but_catalyses_industrys_ability_to_transform/
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