Novel Coronavirus Impacts on the Luxury Retail Industry

Coronavirus closes doors of luxury retailers around the world, but will online markets save the future of these companies?

By Ines Bu

Towards the end of each February, Milan hosts the biannual Milan Fashion Week. A highly anticipated event each season, industry professionals, celebrities, and fans alike swarm into cities like Milan, Paris and New York to see first hand, the magic of the bustling city during one of the busiest times of the year. This year, the audience was taken aback when Giorgio Armani sent “models down an empty theater,” and chose to livestream the event on social media platforms including Instagram instead, due to the growing concerns amid the Covid-19 outbreak. As of February 2020, Italy was battling the largest novel coronavirus outbreak outside of Asia, with a total of 219 cases confirmed in the country — a mere fraction of the numbers presented today. Prior to Armani closing his show off from the public, other designers chose to run their shows as usual, with a select list of audience members on site. Outside of Milan, other cities including Paris, Seoul and Tokyo, which too, host an exclusive list of fashion shows throughout the year, have been forced to postpone these events indefinitely. As the concerns over the novel coronavirus continues to grow, the fundamental question that fashion industry professionals have begun to ask revolves around the revenue concerns of European fashion brands due to the decrease in acquisition of Chinese consumers.

Italy has a fashion and textile industry worth over $107 billion, and is home to 60 percent of manufacturing sites for brands such as Prada, Versace, and Armani. Other European brands such as Louis Vuitton and Fendi also depend on these factories for the manufacturing of the majority of their products. Prior to luxury stocks falling, the stocks of production and textile companies saw a $152 billion erased. During this time, not only are Italian manufacturers unsure of what will happen next in production, but they are also worried about their ability to sell all their products.

Oscar Holland, CNN, reports that “Chinese consumers are integral to the fashion industry’s success: they [are the biggest spenders in the world and without their support, the revenue of European fashion brands will likely drop,” he adds that measures have been taken so that a temporary form of participation is possible through organizations such as the Camera Nazionale della Moda Italiana (CNMI), “roll[ing] out a series of digital inclusion initiatives — including live streaming events — to ensure Chinese insiders can participate in fashion remotely.” By March 17, the coronavirus amassed approximately 796,000 cases globally, and many fashion and beauty businesses, too, have been forced to close their doors for uncertain amounts of time. Since the novel coronavirus outbreak, the stock market has experienced major declines. In retail, some of the industry’s largest holding companies including Carpi Holdings, RealReal Inc., and Tapestry Inc., have seen declines of over 20 percent.

Published by Bain & Company on March 16, 2020, the chart above depicts the shifts in online purchases of consumer goods in China during the first 13 days of the 2020 Lunar New Year. While daily essentials and other household items such as online groceries saw an 80 percent increase in interest, luxury items including cosmetics and skin care needs decreased dramatically.

Despite the unfortunate circumstances that have caused significant delays in production and shows, and events like the Met Gala being postponed to a later date, members of the luxury fashion industry fight back, contributing large sums of time and money to support those affected by the novel coronavirus. Indeed, the industry depends on highly influential figures like Chiara Ferragni to maintain their business and status during the year. Many designers gain their success through collaborations with successful artists, musicians, and bloggers around the world. This type of selective nature encourages the fashion community to be a tight-knit one, and many influencers and designers alike are coming together to raise funds to combat the novel coronavirus’ international spread. Ferragni, one of fashion’s most prominent names, launched a GoFundMe page raising more than 4 million Euros towards Milan’s San Raffaele Hospital, while luxury groups like LVMH Moet Hennessy Louis Vuitton continues to manufacture hand sanitizers at their perfume factories.

On March 13, the American consumer conference experienced the largest single-day drop in more than two years, following a downward spiral that began amidst the Covid-19 concerns. The novel coronavirus is now impacting finances on the personal level, rather than a national one. Christopher Gray, Psy.D., with ad agency Saatchi & Saatchi explains that “since emotions are at the core of luxury consumer spending, the luxury industry is totally dependent upon their customer’s feelings for sales. Rational decision-making takes a back seat in the world of luxury.” For reasons like this, Altagamma, in association with Boston Consulting Group, has already predicted that the coronavirus will eliminate between 30 billion to 40 billion euros in sales, a number that will be hard to recover from within the year.

The novel coronavirus has made an impact on each and every industry in some way over the course of the past couple months. Retailers, both luxury and not, face challenges on a regular basis. In addition, it is estimated that duty-free sales will also see a dramatic decrease in sales numbers — currently estimated at $35.2 billion this year — a 19.1 percent drop from last year. Yet in spite of the difficulties that Covid-19 arises, the saving grace for retailers is to shift their involvement and sales online. Grocery stores and delivery apps averaged a 30 percent increase over normal levels during the weeks of the pandemic. Naturally, frequent consumers of luxury goods have turned online for their products too. While many luxury brands have not fully embraced the power of e-commerce, there seems to be hope for many brands to make up for their loss through connecting with consumers online. □

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