During the early onset of the Coronavirus, there was massive apprehension of the adverse impact on the luxury retail store. This was due to affluent consumers potentially pushing back their purchases, travel restrictions impacting the airport channel, and mass migration of the world to online channels. There have been reports that suggest luxury retail is expected to take a global hit of 35% this financial year. Despite the gloom and doom scenario, there have been a few green shoots. The popular press is inundated with stories of the revenge buying phenomenon in China (where Hermès achieved record single-day sales of $2.7 million during the re-opening of their flagship store) or Jaguar Land Rover generating increasing sales traction over the Past few weeks in China.
In this article, I argue that the prophecy of the death of the luxury retail store (apparel, watches, jewellery, footwear—and I take the liberty to add premium electronics and cars) is likely to remain a work of fiction. In fact, luxury retail may bounce back earlier than other categories the world over. But there will be a few tweaks to the luxury retail store.
The luxury consumer behaves very differently and is likely to exacerbate their existing buyer values post Corona
The buyer values of the luxury consumer revolve around the physical experience of buying a luxury product, exclusivity, quality, authenticity, heritage, craftsmanship, sustainability, and a brand that resonates with their lifestyle and aspirations. In times of a crisis, the luxury consumer, unlike other consumers, is unlikely to downgrade to a more economical variant or an entry level product. Instead of blatant advertisements and sales invites, they prefer referrals from their inner circles and influencers on social media. In fact, as the physical purchase experience serves a huge part of the premium that they are ready to pay for a luxury retail item, it is also unlikely that there will be mass migration to online channels.
The physical retail store will be at the centre of the purchase process; however, the experience will be led by a digital ecosystem
The physical store will remain at the centre of the purchase experience for the luxury consumer due to the physical purchase experience (with focus on touch and feel and perceived exclusivity) being a huge component of the overall premium that is paid. However, there will be an acceleration of supporting digital interventions. While there will be interest online in terms of browsing through portfolio catalogues, the real purchase will continue to happen at the physical store. The nature of window shopping will change from physical to virtual.
There is a likely change in the physical store formats with minimalism, private lounges, and limited inventory
Although the physical store will remain at the centre of the purchase experience, there are likely to be subtle changes to it. The look of luxury retail stores is likely to turn to the smaller size studio format with a minimalist appearance with limited inventory. For larger flagship stores, there is likely to be a presence of a dedicated private lounge for loyal consumers, with provision for concierge services like booking the private lounge for two hours in advance or a concierge carrying a subset of the collection to a luxury consumer’s residence. These changes will positively impact real estate and inventory holding costs.
The in-store experience will emerge contactless but with luxury experience at the core
The in-store shopping experience is bound to turn contactless with contactless payments, virtual dressing rooms, and generous deployment of augmented reality to assist the luxury consumer. With increased concerns on safety, product packaging is likely to turn more robust and visually more exclusive. As a category, apparel is likely to move to a no trial/ virtual trial format or trial on a sample of clothes which are cleaned every day. In fact, mannequins might be wearing masks and gloves to send a larger symbolic buyer value of safety and hygiene.
The physical stores at the airports will continue to struggle due to heightened fears at the airports and limited travel, especially, the absence of the Chinese millennial
The airport channel housing premium liquor, apparel, and watches holds significant importance due to its appeal to the travelling consumer, especially the Chinese as they constitute 30% of the global luxury retail market. In fact, premium airport retail in India is estimated to be in excess of half a billion dollars. With reduced travelling consumers and the fear of the Coronavirus being more pronounced at airports, it is unlikely that this channel will recover any time soon.
In conclusion, the luxury retail store is likely to be at the epicentre of the luxury consumer’s shopping experience but with a few tweaks. Geographically, luxury retail stores in China, developing economies and the U.S. are likely to rebound faster than the rest of the world.
As history has shown, luxury retail consumers are fairly inelastic and not just to pricing.
Views are personal. The author is an MBA from IIM Bangalore and a strategy course holder from INSEAD. He has been a strategy consultant for over a decade. He is the author of three books, ‘Yours Sarcastically’, ‘Satan’s Angels’, and the upcoming ‘Hacks for Life and Career: A Millennial’s Guide to Making it Big’.