A New Era For Luxury
In 2019, the luxury industry was worth an estimated $1.4 trillion globally, a behemoth of high-quality goods and incomparable experiences that was brought to a standstill by COVID-19 in just a few short months. In a year meant to bring further growth, 2020 instead threw a curveball that uprooted the values, charms, and traditions of luxury brands that have ensured their very survival for the past decades, or indeed, centuries.
No corner of the industry was untouched. Super-prime and prime real estate developments halted construction when face-to-face property viewings were off-limits. Hotels around the world from the grand dames to the small family-owned guesthouses alike all locked their doors. Retail stores from New York to London to Shanghai pulled down the shutters, whilst the carefully curated window displays sat unseen. Unsurprisingly, sales plummeted, leading to uncertainty about the ability of brands ever to recover.
At the end of 2019, we anticipated that ‘existential luxury’ would come into the foreground during the next decade. Many of our clients began to look inwards to redefine their purpose to reflect better the changing priorities and needs of the affluent consumer, driven by an ageing millennial workforce which currently represents around 32% of the market. ‘Existential luxury’ would see brands stripping back the layers, introspecting, and distilling experiences, services, and goods to their very core qualities of craftsmanship and innovation. A lumbering process accelerated by COVID-19.
As I write, hopes of a vaccine are dominating the international press and impacting global stock markets. Still, it may not be quite the “golden bullet” imagined (the untold damage of lockdowns on employment and commercial rents is yet to be realised). The real question is not when brands will be able to resume ‘normal’ activity in a post-COVID world, but how they will continue to compete, and recalibrate, in a market where traditional ideas of luxury have been turned on their heads. Over the past 12-months, we have offered crisis support and strategic counsel for clients in all seven of our international offices, and we have witnessed emerging trends as the pandemic continues to infiltrate and change our lives.
Streamlined operations to allow for purposeful luxury
Brands that attempt to address the current challenges and opportunities will better navigate the ongoing crisis. Part of this involves streamlining internal operations, e.g. making supply chains more efficient; bringing in new digital solutions; resetting the fashion calendar of events; reconsidering distribution channels. We can already attest to what can be achieved with a prompt assessment of existing systems, and investment towards the changing consumer needs.
For example, Roman jeweller Bvlgari repurposed perfumery production chains to manufacture hand sanitiser donated to the Italian Civil Protection Department, and LVMH used Dior, Guerlain and Givenchy laboratories to produce 50 tons of hand sanitiser per week for French hospitals. Claridge’s offered 40 NHS key workers a room, daily breakfast, and dinner during the first UK lockdown, as well as daily packed meals for over 500 hospital staff in London. Even with their doors shut, high-end hotels around the world donated rooms, soaps, shampoos, and toothbrushes to very good, very human causes thanks to an operational reset.
Diversification of investments and sales approaches
The impact of the pandemic on already highly volatile financial markets has led international high-net-worth-individuals to diversify their investments both within the financial markets and into tangible assets. Prioritised investments have been those with inherent utility-factor, such as prime real estate, private aviation, personal health and education.
The sales approach for these types of investments has also changed in unexpectedly successful ways. We watched with trepidation as real estate brokers, who ordinarily have relied on face-to-face sales, quickly turned to Zoom conference calls and virtual viewings, attracting new clients in different ways. And it worked. In Manhattan, out of 41 property sales worth more than US$10 million in the first half of 2020, 19 were sold during lockdown from April to June.
Discretion of HNWI+ and the sales approach
Almost a year into living with COVID-19, it is clear that the pandemic has not been the great equaliser. In a world of increasing wealth inequality, growing unemployment, and severe government debt, the world’s wealthiest are keen to avoid unnecessary attention. Discretion is the new black.
In a world where discretion is critical, there is a need for equally prudent and considered sales and marketing approaches, created with high sensitivity to the state of the world right now. Marketing and communication strategies will focus on the underlying quality and craftsmanship of products and services, rather than high prices and other conspicuous signposts of ‘luxury’.