Thursday, 21 Oct 2021

Luxury Retail Evolves in Wake of COVID-19 Pandemic

MILAN — “Digital, physical and magical” is one way to describe modern retail, according to Michael Ward, managing director of Harrods, speaking at the virtual Altagamma Retail Insight 2021 conference on Tuesday.

The acceleration of the digital revolution in the wake of the COVID-19 pandemic was among the key topics and “not neutral from a strategic point of view.” On the contrary, “it puts pressure on the Italian fashion system,” said Luca Solca, senior research analyst, Global Luxury Goods at Bernstein. He identified potential elements of weakness for Italian luxury companies producing at reduced scale compared to international competitors, including the “enormously increasing fixed costs,” a higher dependency on the multibrand wholesale channel, which is “today in a terminal crisis,” and lagging behind in the digital transformation.

Social media, influencers and multibrand digital e-commerce are further exacerbating traffic and productivity challenges, with a “risk of seeing a lower retail productivity, which is the financial kiss of death,” which impacts the valuation of publicly listed brands, for example.

Solca said the need to create capsules, exhibitions, pop-ups and other methods of differentiating flagships with high-touch service are expensive, resulting in a higher incidence of fixed costs, which are difficult to sustain for smaller companies. “Counteracting demands resources, favoring scale,” said Solca, noting that as a result, M&A activity and new partnerships have gained steam in Italy. “The digital revolution consolidates multibrand retail and the smaller multibrand boutiques risk being the weaker ring in the chain.”

View Gallery

Related Gallery

The 2021 Oscars: See All the Red Carpet Fashion Looks

Solca said online sales of personal luxury goods grew 50 percent year-on-year to 49 billion euros in 2020, and are expected to reach between 105 and 115 billion euros in 2025.

Matteo Lunelli, president of Altagamma, said Italian companies are going through “a deep transformation of their business model,” which require investment. He pointed to the Recovery Plan that is being discussed in Parliament by Prime Minister Mario Draghi and the 14 billion euros dedicated to the transition and the digitalization of companies that “we hope will be a concrete support to the Made in Italy companies of excellence.”

While admitting the increasing importance of online shopping, Michele Norsa, executive vice chairman of Salvatore Ferragamo SpA, was “less optimistic” about the online quota in the future, underscoring the quality of physical experience. “The retail experience is a founding value of the luxury system in addition to being a vital impulse for traveling and it enhances the European culture. Would you rather eat at a starred restaurant or [the same menu] delivered at home? This is the same for luxury goods,” contended Norsa, doubtful about “buying a Bulgari necklace or a Valentino gown from one’s sofa. We have to avoid flattening the experience.”

“Actually I think it’s more of a luxury experience to be able to buy remotely from your sofa with a glass of wine rather than having to run across town to a store,” said Chris Morton, founder and chief executive officer of shopping search platform Lyst, noting that consumers “expect to do anything with their smartphone,” comparing it to a remote control.

Comparing fashion to other industries, such as travel, he believes it is one of the least penetrated industries online. “Offline will continue to be critical, but how do we marry the two together? Customers will not make that distinction, they are agnostic as to how the spending happens.”

U.S. and Europe make up for 90 percent of Lyst’s business, and asked about Asia, he said the company is in a wait-and-see mode, “to see how it evolves, we are watching the Farfetch and Alibaba partnership, cheering on the sidelines and we’ll see when the right time comes for us,” emphasizing the opportunities the region offers.

Harrods’ Ward said that because the Chinese are shopping locally now, the store has opened two private shops in Shanghai and one in May in Beijing, as “touching the customer is a must.”

Harrods reopened on April 12 in London after six months of lockdown and a 20 percent decrease in sales last year, and, while he was initially more pessimistic, Ward sees business “building back in a much stronger way,” as the store continues to strengthen the customer experience, adding food with three Michelin-starred chefs, for example, a hairdressing salon and personalized chocolate as the chocolate hall is being finalized.

Nicola Pianon, managing director and senior partner of Boston Consulting Group, said luxury companies will have to respond to an environment in which consumers, at least for a few years, will be traveling closer to home. While paying close attention to the online channel, “brick-and-mortar stores will continue to have a key role — adequate traffic and profitability will be satisfying only if brands will know how to provide customers with care, personalization and an experience that gives added value.”

Paradoxically, he said Millennials and Gen Z “are the ones most hit by the pandemic in terms of unemployment, but they are readier to shop than Baby Boomers, who have been less hit and are more cautious.”

Source: Read Full Article

Best News