Is the COVID19 presenting the Luxury Industry with an opportunity?

While at first, a lot of industries did not really take the COVID-19 crisis seriously, absolutely everyone does so today. The Luxury and Retail industry, however, did very quickly understand the danger of this global danger. Yet, despite this understanding, it is also failing to respond as effectively is it could have.

With the news cycles of the last 8-10 weeks being almost exclusively dedicated to the Coronavirus pandemic, it is impossible to ignore how this is affecting everyone, everywhere. Being scared and worried is okay. It is normal to worry about one’s family and own health. Moreover, taking precautions is also the responsible thing to do. However, the side effect of these precautions seems to be the destruction of value and the collapse of demand, especially for products and services that are not a necessity. This – you understood as much – directly impacts the Luxury Industry.

As with Oil, China as a geographical market and the Chinese as a population, have been driving the growth in the demand for luxury goods this last decade. All brands know that, and all have been trying to define and implement solutions in other markets in order to reduce this dependence. With the COVID-19 crisis starting in China, the drastic (and efficient) decisions implemented by the Chinese authorities have certainly limited what could have been a WorldWar Z-like scenario but have brought the luxury retail industry there to a standstill. No other market could have picked up the slack and make-up for the unforeseen, unplanned losses. So what solutions were implemented? They simply followed the age-old classic business-school rule: “If you can’t increase or secure revenue, you must reduce your expenses”.

So let’s see what’s been happening (the most to the least drastic):

-        Close boutiques/stores and put retail staff on technical unemployment

-        Termination of some of the workforce (retail, production, etc…)

-        Freezing investments (CAPEX, communication, events, training, etc…)

-        Implement partial or total travel bans

These are some of the most striking quick-fix decisions that have been implemented and that will certainly have a short-term relief effect, but a long-term negative effect on brands and luxury industry professionals.

On the other hand, if the luxury industry, especially the mighty groups and powerful brands, were to consider the current situation with a different set of eyes, it could be argued that this crisis is presenting the industry with a unique opportunity to step up and take the lead on several fronts where the industry has been lacking visibility or efficiency (Training, Data Collection, Data Analysis, Surveying of customers, etc....)

Indeed, although no numbers are yet available, it is highly likely that online luxury retailers (Yoox Net-a-Porter, Mr Porter, Namshi, etc…) are seeing their performance drop is only a fraction of that of physical retailers. Not only do they offer the (now considered positive) chance to make your purchase without needing a human contact, by they have been tracking audience behavior for the longest time. KYA (Know your Audience) tools have yet to become a standard for the physical retail industry. By understanding their audience, online retailers can very quickly pick-up on audience trends and react to them.

So what are the actual dangers the industry faces, what are the mistakes that are being made and what are the actual opportunities we have:

The Dangers and Mistakes

-        Once you have terminated highly trained professionals you’d have a) lost an asset and b) shown everyone in your organization that your financial bottom line matters to you more than the wellbeing of people who dedicate their lives to your brand. So it will be harder to hire qualitative professionals in the future.

-        When you press your wholesale clients to pay-up their dues although you know full well that their sell-out performance is at a standstill, you may be pushing them towards bankruptcy and create resentment towards you and your brand.

-        When landlords (shopping Malls, event venues, etc…) press their tenants to keep their commitments, to pay-up in time, they are creating a similar situation where the weak ones could go bankrupt and the surviving ones will have resentment towards them in the future.

-        When brands stop their investment on small providers that provide all kinds of services to their staff, their stores, their brand, they are likely to bring these to their knees financially and perhaps kill businesses.

The Opportunities

This is the right time for the industry players to show empathy and solidarity across the board. Whenever it’s possible, allow your partners, providers, and clients some room to breathe:

-        Check on your clients/suppliers: Tell your retail staff to send “check on you” messages to their clients. Reach out to your wholesale accounts, ask how you can help. Do the same with your suppliers.

-        Extend your payment terms to your partners if you can, allow them partial payment in line with sell-out performance at least for a quarter. This would go a long way for your partners to better manage their cash-flow and appreciate your brand even more.

-        Send your retail staff on improvement/training sessions, even online, but invest in them so they take advantage of the low traffic in stores to improve.

-        Start looking at how you can better understand your in-store audience to see who is still coming to stores. If you were highly dependent on a specific population (such as Chinese tourists), now is the time to understand who are the other populations that still show up and how you could best target them.

-        Start putting some more humanity on your interactions, it can only improve your image and perception with your partners.

The song goes “To everything, there is a season”. This crisis season has had a beginning and it will have an end. Every day, every week that goes by is getting us closer to that end. Once we’re through, we’ll all look back and ask ourselves if we’ve done the right thing and if we’ve learned enough to be ready for the next hit because there will be another crisis in the future, as there have been several in the past. But the important thing to remember is this: We'll get out of it as we did in the past, how well will we look getting out of it? That depends on the attitude of each one of us.

Omar Chaoui – Founder & CEO DynaLux

DynaLux Consulting DMCC is a firm established in Dubai and servicing the Luxury Industry. DynaLux has developed a proprietary technology to assist luxury retail stores in understanding in detail the actual audience that visits luxury stores, unlike standard CRM tools that focus only on paying customers. By understanding the complete audience of visitors, DynaLux assists brands and retailers alike to improve their conversion rate by addressing the specific issues that can be noticed thanks to data collection and analysis. For more information, write to: [email protected]