A NEW ERA AND A NEW LOOK FOR LUXURY - By Sarah Willersdorf, Joël Hazan, Guia Ricci, Alexandre Prénaud, Filippo Bianchi, Javier Seara, and ...
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A NEW ERA AND A NEW
LOOK FOR LUXURY
By Sarah Willersdorf, Joël Hazan, Guia Ricci, Alexandre Prénaud, Filippo Bianchi,
Javier Seara, and Veronique Yang
L uxury brands spent decades turning
design, aspiration, and high-quality
goods into a $380 billion global behemoth.
more environmentally and socially aware
and digital channels become more import-
ant as sources of inspiration and sales.
The coronavirus pandemic changed it all in Companies that respond by streamlining
a few short months. Sales have plummeted, operations, redefining luxury to be less
leading to forecasts for a precipitous conspicuous and more inclusive, and in-
decline in 2020 revenue and massive vesting in new ways of doing business are
uncertainty about the ability of many more likely to not just power through these
brands to rebound. The long-term impact uncertain, changing times but emerge
of the crisis on brands will be just as stronger for the future.
dramatic, accelerating shifts in consump-
tion and consumer preferences that will
upset the existing equilibrium of power. The End of Luxury’s Golden Era
The crisis has slowed a decade of growth
BCG believes that industries of all kinds— across luxury categories that was buoyed
including luxury—will go through a three- by a bullish global economy and the rela-
phase recovery from the COVID-19 crisis, tive affluence of Chinese consumers, who
one that we call “Flatten, Fight, and Fu- in recent years accounted for 35% of luxury
ture.” Based on our discussions with luxury purchases worldwide. Growth was further
brands’ C-suite leaders, we believe the in- spurred by the democratization of luxury
dustry faces a protracted Fight phase, goods ushered in by lower opening price
where regions gradually restart their econ- points, excitement over new categories
omies but business outlooks remain uncer- such as high-end sneakers and casualwear,
tain because of the potential for the virus and collaborations between labels.
to reemerge. At the same time, brands are
grappling with a fundamental shift in what Now, even the most optimistic forecasts
“luxury” means, as consumers become show sales of luxury goods dropping 25%to 45% in 2020. (See Exhibit 1.) In a best- easy and conspicuous affluence. The
case scenario, where a vaccine becomes COVID-19 pandemic paused travel and
available or the economic ramifications travel-related shopping for the foreseeable
of the pandemic are not too severe, people future. It’s also driven more people to shop
will resume shopping and traveling and online, including those who avoided it in
give a boost to luxury goods sales. But in the past. Luxury slowly had begun to
a worst-case scenario, where a vaccine become more diverse and inclusive. In light
takes longer to develop or the recession is of the current state of the world, that move
more severe, companies will struggle to is now nonnegotiable.
regain momentum and people’s ability
and willingness to buy luxury goods will Category sales are shifting. Although
suffer. consumers are spending less on luxury
goods during and immediately after
Taking these factors into account, we ex- lockdown periods, brands whose products
pect that the industry’s recovery will be are perceived to be timeless have not and
gradual. Although performance will vary will not be affected as much as those that
across individual categories, we believe are more dependent on fashion trends and
that a worst-case scenario could cause fads. In addition, categories that are further
overall sales in 2021 to be 20% lower than along in incorporating digital platforms
in 2019, followed by a somewhat smaller and technologies into sales and distribu-
decline in 2022. By 2023 and beyond, we tion channels should fare better.
expect sales in most categories to return to
precrisis levels. We believe skin care, makeup, footwear,
and leather goods are in the best position
For now, though, the new reality is upend- to rebound. Sales in these categories are
ing the status quo in several ways. less tied to seasons, holidays, or other key
moments than are others, and online sales
Current events are reshaping how people are already relatively strong. We expect
think and behave. The COVID-19 crisis and that sales in these categories will decline in
recent protests to end racism have made 2020 but recover faster than others, poten-
existing social inequities even more tially reaching precrisis levels in 2021 or
apparent and people less comfortable with 2022.
Exhibit 1 | Luxury Brand Sales Could Take More Than Two Years to Recover
40
Quarterly sales change compared with 2019 (%)
Potential drop of Potential drop of Potential to drop by 15% or
25% to 45% vs. 2019 up to 20% vs. 2019 increase by 5% vs. 2019
20
0
–20
–40
–60
–80
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2019 2020 2021 2022
Best-case scenario Worst-case scenario
Source: BCG analysis.
Boston Consulting Group | A New Era and a New Look for Luxury 2By contrast, watches and jewelry will on The crisis hit department stores especially
average face more challenges because of hard, and we expect them to continue to
their continued strong reliance on sales be affected unless they adopt more person-
through physical and wholesale channels, alized “clienteling 2.0” sales practices and
and because of the extreme drop in inter- expand digital sales channels.
national travel. Today, e-commerce ac-
counts for only 10% of watch sales and 5%
of jewelry and eyewear sales. Ready-to- Challenges and Opportunities
wear brands also will struggle; any revenue Shifting economic, consumer, and societal
they realize from a seasonal rebound could trends present challenges and opportuni-
be offset by the need to offer discounts to ties for luxury brands and retailers.
sell off excess inventory. We expect sales in
these categories to drop by 35% to 50% this Demand for sustainability grows. Address-
year and not reach precrisis levels until at ing consumer interest in sustainability is
least 2023. now table stakes for the industry. Brands
must rethink their entire value chain to
Countries are recovering at different rates. ensure that it is environmentally and
China experienced the worst of the crisis ethically sound. Such a reevaluation could
ahead of most other places, and the lead them to make a number of changes,
Chinese economy has already recovered to including sourcing more materials locally,
the point where GDP growth is forecast to reducing their carbon footprint, providing
surpass the 2019 increase and continue to more support for local communities, and
expand. Sales of luxury goods in China are supporting animal rights.
expected to rebound and end the year as
much as 10% above the 2019 mark, as more Diversity and inclusivity are must-haves.
Chinese who normally shop for luxury The year 2020 will be known as one of
goods when they travel stay home and turmoil, but hopefully also one of change.
spend in the country. The luxury business, as with all industries,
must use the opportunity to make diversity
By contrast, European countries such as and inclusivity a priority for their work-
France, Italy, and the UK could suffer from force and customers.
the effects of the crisis well beyond 2020.
In those countries, less international travel A quieter style of luxury emerges. The next
and weak local demand amid prolonged decade will be one of uneasy affluence,
economic fallout from the crisis will contin- with shoppers in many parts of the world
ue to hurt sales of luxury goods. In the US reverting to less conspicuous forms of
and Japan, consumers expect the crisis to luxury. In a recent BCG consumer survey,
create a recession, and they plan to spend more than half of the respondents expect-
less on luxury goods as a result. In the US, ed their preference to increase for luxury
the luxury market will be further hurt by items that are understated and everlasting.
the closings of some department stores and Chinese consumers, however, continue to
high-end retailers, as well as by the current prefer luxury items with embellishments,
social and political climate. logos, and other visible adornments, a
difference that could polarize luxury values
Online channels are blossoming. Some between East and West.
luxury brands had been cautious about
venturing into e-commerce because they Midterm tourist sales remain low. Because
didn’t see it as a good match with consum- travel in most parts of the world is on hold,
er expectations for a high-end shopping brands must find a way to make up for the
experience. But as more people bypass revenue lost from a decline in sales to
shopping in person for the convenience tourists, in particular the sales to individu-
and relative safety of buying things online, als of ultrahigh net worth. To make up the
luxury brands must accelerate sales difference, many brands will need to
through online channels. prioritize replacement of the revenue lost
Boston Consulting Group | A New Era and a New Look for Luxury 3from Chinese tourists with sales to local track, analyze, and act on signs of trends in
markets. demand. Data analysis will play a larger
role in such intelligence gathering, allowing
Digital channels accelerate. Before the brands to create and deliver the right
crisis, e-commerce accounted for 10% to merchandise to the right place at the right
12% of luxury sales worldwide. Lockdown time. We also expect to see more industry
periods created a boom in online shopping, consolidation, with size and scale becom-
including higher sales to e-commerce ing even more important than they were in
novices. We expect new shopping behav- the previous decade.
iors to endure beyond the crisis, similar to
how the SARS crisis in Asia was the turn-
ing point for digital and online platforms How Luxury Brands Can Win
there. We also expect online shopping in the New Reality
behaviors to continue to include not only Brands that address challenges and oppor-
transactions but also the inspiration stage tunities without delay will be in a better
of the purchase journey, which now ac- position to navigate the new reality. In the
counts for a large portion of consumers’ initial Flatten phase, luxury players priori-
online shopping-related activity. Genera- tized protecting their people and cash.
tion Z shoppers—those aged 5 to 25—in Some switched to making personal protec-
particular devote half of the time they tive equipment, hand sanitizer, and other
spend making a purchase either seeking essentials. In most regions, brands now are
inspiration or inspiring others. More than transitioning to the Fight phase, where
70% of the age group globally and 82% in they need to reset and streamline opera-
the US decide what to buy during the tions and invest in areas that will drive ad-
inspiration stage of the purchase journey. vantage into the Future phase of the new
luxury reality. (See Exhibit 2.)
The market is significantly more volatile.
The full extent of COVID-19‘s impact on Reset and Streamline
the industry and the impending recession Companies must rethink what, when, and
remains to be seen. To navigate the uncer- how they sell in order to recalibrate opera-
tainties, brands must develop the ability to tions to meet a changed sales picture.
Exhibit 2 | Luxury Brands Must Reset, Streamline, and Invest
Reset and streamline Invest
Reset distribution Address the changing consumer
Make supply chains more
Invest in inspiration
effective and agile
Reset costs to adjust the P&L Embrace clienteling 2.0
Rethink the fashion calendar Accelerate the digital ecosystem
Implement a zero-based
Build an AI-driven technology backbone
organization redesign
Bring fresh skills to the workforce
Source: BCG analysis.
Boston Consulting Group | A New Era and a New Look for Luxury 4Reset distribution. To reengineer distribu- inaccessible owing to trade wars. We
tion, brands must bolster their presence in expect some brands to integrate vertically,
key cities in the regions where they oper- particularly large companies and conglom-
ate, because as long as travel restrictions erates that would benefit from acquiring
inhibit tourist-related purchases, those manufacturing capacity if controlling the
areas will represent a larger portion of means of production could earn them a
sales. To attract more local clientele, competitive edge.
brands must step up their value proposi-
tion, offering more merchandise that’s Reset costs to adjust the P&L. To counter
relevant to local shoppers, sourcing more the near-term reality of lower revenue and
merchandise closer to home, and spending preserve operating profits, luxury brands
more on local marketing. must reshape their P&L. They must adjust
costs across the board, including such
Because department stores continue to op- fundamentals as the cost of goods sold,
erate under pressure, brands must take care rent, and personnel.
to partner with successful enterprises even
as they build out their direct-to-consumer Rethink the fashion calendar. Even before
channels—including their own stores. We the crisis, the fashion and luxury industries
expect brands to sell through multiple digi- were working to reconcile the disconnect
tal channels, including their own websites, between the long-entrenched cycles for
digital-only pure players such as Net-A-Porter unveiling, delivering, and marking down
and Farfetch, and social networks. merchandise and the reality of consumers’
shopping habits, preferences, and needs.
In addition to selling merchandise, digital The crisis has intensified the need to
channels have become essential inspira- change in order to reduce expenses,
tion points in the prepurchase phase of the increase margins, and operate more
consumer journey. To win over luxury buy- sustainably, among other things. Such a
ers, brands must invest in boosting their change is no small undertaking. It would
visibility in these channels, offering such require overhauling a brand’s entire
amenities as virtual try-ons and giving cus- fashion calendar, including the number of
tomers a more personalized shopping ex- collections it produces each year and when,
perience. We also expect the recessionary where, and how those collections are
economies in some regions to accelerate shown and delivered. And it would have a
growth of platforms that sell preowned trickle-down effect on wholesale and
merchandise. Luxury brands will need to e-commerce channels.
determine if and how to engage with these
platforms. Implement a zero-based organization
redesign. Implementing a zero-based
Make supply chains more efficient and organization redesign is another way that
agile. To respond faster to shifting market luxury brands can make their cost struc-
conditions, reduce time to market, and ture leaner and more agile. In the process,
decrease exposure to market volatility, a company considers what it would need
brands must reinvent their supply chain if it were to launch today, and then it puts
and renegotiate supplier relationships. To those systems in place, including data
create a more agile supply chain that analytics to forecast and augment decision
allows them to be more flexible, brands making and identify cost savings. A zero-
may need to shift from high-volume based reorganization could lead a compa-
manufacturing partners to producers that ny to adopt a bionic operating model, one
operate more factories located closer to that seamlessly integrates the capabilities
customers. That way they can cut delivery of people and technology. A bionic operat-
times and improve time to market. They ing model also gives brands the chance to
would also have redundant coverage digitize their product development and
should factories in certain areas shut down their supply chain to be more agile and
because of a public health crisis or become effective.
Boston Consulting Group | A New Era and a New Look for Luxury 5Invest Embrace clienteling 2.0. As shopping
If brands successfully revamp operations, preferences and habits evolve, brands must
they may be able to free up the resources develop tools for engaging with high-end
necessary to expand into new sales chan- customers. In the next decade, we believe
nels and to invest in such areas as data an- this will mean focusing on clienteling 2.0,
alytics and artificial intelligence. combining people and data by, for exam-
ple, using machine learning to share
Address the changing consumer. Luxury relevant information with salespeople in
brands haven’t always made consumer order to improve how they engage with
concerns the center of their business. They customers. A number of brands and
need to now, starting with making diversity retailers are already testing this concept;
and inclusivity a key objective, with clear some found success during pandemic-
plans and performance targets. Efforts to generated lockdowns, after turning store
become more diverse should encompass associates into digital stylists and having
personnel at all levels—from retail staff up them engage with consumers and sell
to and including the C-suite and board. merchandise directly through WeChat and
Brands also need to make sustainability a Instagram. In our client work, we’ve seen
key pillar in everything they do. This is not companies that implement clienteling 2.0
only about growing consumer demand. boost sales by 10% to 15%.
Going green now could serve as a hedge
against rising commodity prices and the Accelerate the digital ecosystem. Many
stricter environmental regulations that are luxury brands have been slow to embrace
expected in some parts of the world. digital channels, but given how many
Brands must take similar steps to address people shopped online for the first time
consumer demand for purpose and social during the pandemic—including some who
consciousness in the companies they bought luxury goods—they need to catch
patronize. To remain relevant to the next up, and quickly. Brands must create online
generation of customers, they must do a experiences that feel exclusive and beyond
better job of sharing their purpose and what nonluxury retailers offer. Experiences
values and demonstrating their heritage should take into account not just shopping
and authenticity. And underlying all this and purchase transactions but also related
will be the need to, with some notable activities such as fashion shows, private
exceptions, cater to a quieter, less conspicu- showings, personal shoppers, white-glove
ous form of luxury that is characterized by delivery, and other customized services.
temperance, slow fashion, and quality.
Build an AI-driven technology backbone.
Invest in inspiration. If consumers are Adoption of artificial intelligence (AI),
spending more time in the inspiration advanced analytics, and other components
phase of the purchase journey, then brands of an enterprise-wide technology backbone
need to be there as well, including on will become a key differentiator in the
social channels such as Instagram and industry. If the Fight phase of crisis recov-
WeChat. To be culturally credible, brands ery continues for some time, it may be
need to cultivate an image that’s both difficult to predict product trends, at least
aspirational and accessible, and they must in the near term. Brands can use AI to steer
make it easy for their audience to commu- the way, doing pulse checks on buying
nicate and interact with them. Brands can patterns, for example, to improve demand
use their social channels to show how they tracking and analysis and gain insights that
participate in social, civic, environmental, competitors might not have. AI also can
and other causes. To be as transparent and help brands manage manufacturing and
authentic as possible, they should also stock in a more agile way. The benefits
collaborate with third parties—to deepen include improved in-season inventory
their awareness of local groups and subcul- management and markdowns. And it can
tures—and support cultural pioneers and help them customize their value proposi-
the circles they direct. tion to a hyperpersonalized level.
Boston Consulting Group | A New Era and a New Look for Luxury 6Bring fresh skills to the workforce. The
pursuit of talent with the necessary skills
will be one of the luxury industry’s biggest
T he times and changing attitudes are
redefining the meaning of luxury, forc-
ing brands to rethink every aspect of their
challenges in the coming decade. The business. The key imperatives are operating
industry needs data engineers, data scien- more sustainably, ensuring diversity and in-
tists, analysts, and other digitally savvy clusivity, embracing digital capabilities, and
talent—all people whose talents make integrating people and technology. Compa-
them highly sought after. There will also be nies with timeless, classic products and the
a need to upskill existing talent as AI and cash to upgrade to these new ways of doing
advanced analytics continue to transform business will consolidate power at the ex-
all areas of the value chain. pense of brands that fail to act.
About the Authors
Sarah Willersdorf is a managing director and partner in the New York office of Boston Consulting Group
and global head of the firm’s work in the luxury industry. You may contact her by email at
willersdorf.sarah@bcg.com.
Joël Hazan is a managing director and partner in BCG’s Paris office and a core member of teams work-
ing in the areas of consumer and retail, marketing, sales, and pricing. You may contact him by email at
hazan.joel@bcg.com.
Guia Ricci is a principal in the firm’s Milan office. You may contact her by email at ricci.guia@bcg.com.
Alexandre Prénaud is a principal in BCG’s Paris office. You may contact him by email at
prenaud.alexandre@bcg.com.
Filippo Bianchi is a managing director and partner in the firm’s Milan office and European head of
BCG’s work in fashion and luxury. You may contact him by email at bianchi.filippo@bcg.com.
Javier Seara is a managing director and senior partner in the firm’s Munich office and global head of
BCG’s work related to fashion and luxury. You may contact him by email at seara.javier@bcg.com.
Veronique Yang is a managing director and partner in the firm’s Shanghai office and leader of BCG
GAMMA in China. You may contact her by email at yang.veronique@bcg.com.
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