Effects of the Coronavirus Outbreak on the Luxury Industry

Written by 胡婳溦 for 第一财经, please click here to read the original article in Mandarin.

Offline traffic in the luxury goods industry has been reduced by 80%, and live streaming and flash delivery have opened a new model for online sales.

During the epidemic, consumers have turned to a “home” model, which has caused a large impact on the luxury goods industry that relies on offline store experiences. However, online luxury platforms have seen a wave of new opportunities through live broadcasts and flash delivery.

Offline stores shrink, luxury industry shocked in the first half of the year.

The most direct impact of the epidemic on the luxury industry is the decreasing sales of offline stores. According to statistics from the Shanghai Jiaotong University Industry Research Institute, in the five central cities of Wuhan, Shenzhen, Guangzhou, Shanghai, and Beijing, the flow of people at the top shopping malls and luxury flagship stores during the Spring Festival fell by about 80% compared to 2019.


Given that China ’s luxury consumption is still dominated by overseas markets, and Britain, the United States, Germany, France, Australia, Italy and many other countries have stopped flights to and from mainland China, the disruption of international traffic will affect China ’s Q1 and Q2 luxury consumption. Bain & Company found that half of the companies surveyed (especially those in the luxury goods and F&B industries) believe that the completion rate of business indicators in the first quarter will be below 50%.


Gucci ’s sinking strategy in China, which has always regarded Louis Vuitton as a rival, will also be affected. Kering ’s five luxury brands originally planned to open 14 new locations in Shanghai, Dalian, Kunming, Wuhan, Shenyang and Wuxi, but the plan has been temporarily suspended.

Angelito Tan, Founder and CEO of RTG Consulting Group, told CBN that
while the coronavirus has led to a decline in sales across the luxury industry, experience and service-based luxury sectors, such as hospitality, high-end restaurants, seasonal fashion, and wine and spirits, will be hit the hardest. Sales will be lost, rather than deferred as in other sectors.


“For seasonal apparel, for example, consumers will not return to winter collections as the weather turns warmer. Challenges for apparel may extend through the year if production on fall/winter 2020 collections is delayed by prolonged factory closures.” Angelito Tan said.

The influence of the “Black Swan” was quickly reflected in the capital market. From the highest point of January 17, 2020, the share price of the world’s largest luxury goods group, LVMH Group, fell from 439.05 euros per share to 400.00 euros, and nearly 20 billion euros of market value evaporated. Kering Group also fell from 610.20 euros to 561.60 euros; Richemont Group fell from 80.94 Swiss francs to 70.64 Swiss francs; the consistent and stable Hermes Group share price also suffered fluctuations, from 725.60 euros to 676.60 euros. Other luxury goods companies also face varying levels of share price declines.

The Shanghai Jiao Tong University Industry Research Institute pointed out that the outbreak may reduce Chinese consumers’ luxury consumption by 20% in the first quarter of 2020, and reduce the revenue of LVMH Group in fiscal 2020 by 3%. The impact of the epidemic can be referred in part to the severe impact of the SARS outbreak in 2003. In China’s worst-affected areas in 2003, luxury sales fell by about 40%.


However, in the long run, luxury brands emphasize their place of origin, so the impact of the epidemic on the luxury goods industry has not caused systemic damage. Shanghai Jiaotong University’s Luxury Brand Research Center predicts that China’s luxury market and consumption will resume as early as October 2021, and then gradually strengthen. Whether recovery arrives sooner depends on the prevention and control of the epidemic at this stage.


Despite online live broadcast and offline flash delivery, logistics are still a problem

While offline shocks, luxury goods companies have turned their attention to online channels. However, during the epidemic, online sale of luxury goods has not been easy, and consumer demand for some luxury goods has decreased.

Bain & Company, in conjunction with Alibaba, Tmall, and based on exclusive consumption data surveys provided by Tmall, found that due to the decrease in social activities, associated demand has temporarily decreased, including party items (such as candy, wine) and personal image (e.g. skincare, cosmetics, oral care). However, with the gradual recovery of social activities, related demand will show a strong rebound.


Data shows that beauty product sales as a whole have fallen by 30%. High-end beauty products have been most affected, down by 40%. The primary contributors to the high-end beauty category are the younger generations, mainly Gen Z (generation Z), of emerging white-collar workers, who contributed to more than 50% of the sales in this category in 2019. Because of the epidemic, the number of social occasions for these groups has declined, thus significantly reducing purchases.


Furthermore, in the special case of the epidemic, online sales are facing practical problems. Due to previous road closures and slow logistics resumption, logistics and distribution have become the biggest challenges for online channels. Angelito Tan believes that during this period, platforms such as JD.com and Tmall will have advantages over official brand channels as they can maintain rapid delivery. The maturity of e-commerce platforms gives them the opportunity to see more significant sales growth.

Angelito Tan also predicts that a major trend in 2020 will be a push for better online experiences. “Brands will need to invest in opportunities to improve at each stage of consumers’ online luxury shopping experience, including enhanced personalization, applied technology, and artificial intelligence.”

In special times, luxury e-commerce platforms seize the opportunity to step up cooperation with offline luxury brands on the one hand and launch various online activities to attract consumers on the other. Take luxury e-commerce Secoo as an example. Earlier, Secoo announced an initiative to attract more brands and buyer stores to their online store to help reduce existing inventory and increase cash flow.

An individual in charge of Secoo’s public relations told First Business News: “Since the investment promotion, hundreds of brands have joined Secoo successively. Take Beijing Shopping Center as an example. Cuiwei, Lufthansa, Qiaofufang, Grassland, and many other high-end offline shopping malls and brand stores have successively participated in the live broadcast of Secoo. “

In addition to the brand’s traffic support, Secoo also provided flash-back support to Beijing’s brand merchants, Secoo Beijing offline stores, North China warehouse, etc. Based on this, Secoo has developed a combination of online live broadcast and offline flash delivery. At present, the exclusive live broadcast rooms of several brands, such as Armani, Prada, Hèrmes, etc., can receive flash delivery if they are available in Beijing. Open up online and offline channels. Brands live days to be launched next include international first-tier brands such as HERMES, BVLGARI, GUCCI, Tiffany & Co, and VERRI.

In addition, Secoo told the First Financial Journalist that due to the epidemic affecting fashion week shows, many brands began to cooperate with Secoo this year. Secoo combined Moschino, Tods, Versace, PhilippPlein, Lavin, GiuseppeZanotti and other international first-tier brands who will simultaneously broadcast Milan Fashion Week and Paris Fashion Week on the Secoo App.

E-commerce platforms such as Tmall and JD.com also continue to make efforts in the field of luxury goods. Kenzo, a luxury brand owned by LVMH Group, officially launched on Tmall on January 17 2020. The latest brand from that group to launch on the Tmall platform, Kenzo’s presence means that the five core divisions of the LVMH Group (wine and spirits, fashion and leather goods, perfumes and cosmetics, watches and jewelry, and boutique retail stores) have all entered Tmall.


On the eve of the outbreak, Cartier’s core jewelry brand Cartier brought classic products to Tmall. On January 30, Farfetch, a British luxury e-commerce platform, joined forces with Tencent to create a new system for luxury e-commerce. Shanghai Jiaotong University Luxury Brand Research Center said the epidemic will further promote the close integration of the relatively conservative luxury goods industry with the digitalization of the Internet.


“Formerly regarded with high suspicion, skepticism towards the quality of online luxury purchases has gradually diminished. Addressing these concerns in recent years, Alibaba and other online retail platform providers in China have tightened security and prioritized anti-counterfeit measures for luxury products. “Angelito Tan told Yicai Reporter.



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