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Covid-19 ushers in a new digital & innovation age for luxury

Alissa Demorest

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Covid-19 ushers in a new digital & innovation age for luxury

The 2021 edition of Deloitte’s Global Powers of Luxury Goods report takes stock of the impact of Covid-19 on the world’s luxury market. While sales were hard hit across the board – the top 100 luxury players saw their revenue fall from $281bn in 2019 to $252bn in 2020 – the crisis has spurred companies into unprecedented action on the innovation and digitalization fronts.

In its annual Global Powers of Luxury Goods report, Deloitte defines the luxury goods market as being “resilient” in 2020, despite the health pandemic’s impact on revenue. This loss in sales had varying levels of impact, says the report; more than half of the top-100 ranked companies still made a profit last year, including all of the top-10 players (LVMH, Kering, Estée Lauder Companies, Richemont, L’Oréal Luxe, Chanel, EssilorLuxottica, PVH Corp, Hermès, Chow Tai Fook Jewelry Group). Of the top-100 companies, 13 still managed to report double-digit profit margins.

Setting aside the reversals of fortune, notably the travel-retail channel, the health crisis has been a boon to the luxury industry in that it has forced it to become more reactive. Where pre-crisis decision-making processes were notably long and complex in the luxury tradition, the pandemic has accelerated change. With retail stores shuttered for much of 2020, brands had to rethink their distribution strategies and how best to reach their consumer; digital was the obvious solution. “The jump into the digital world has been faster than expected, and companies’ aim is now to refine the solutions already implemented and develop new digital ones. This increased pace means a complete rethinking of production processes and, most importantly, finding new ways of creating products,” notes the report.

Luxury product conception has indeed entered a new era. “The industry’s big players are sponsoring innovation competitions between start-ups and incubators, with the aim of promoting innovative practices and fueling the proliferation of new approaches […]. The ultimate goal? To become digital and sustainable by design.” Illustrations of this are myriad: LVMH’s Innovation Award, L’Oréal-sponsored “beauty accelerator” within Station F in Paris, Kering and Estée Lauder’s tie-ups with global innovation platform Plug & Play, to name a few.

This week global investment firm Cathay Capital Group launched the Consumer Co-creation Fund, an initiative in partnership with Kering, L’Oréal and Pernod Ricard. The fund will invest in - from seed to Series A - and incubate what it identifies as high-potential Chinese consumer-goods and retail start-ups to bring “unmatched expertise from the beauty, wine and spirits and luxury fields, and identify cornerstone entrepreneurs and business partners for co-creation,” explains Cathay Capital. “Thanks to its supply chain capabilities, multi-level market demands, increasing influence of the Chinese culture and established infrastructure, China is likely to be home to many world-class consumer and retail companies in the next few years.”

A similar enterprise was announced this summer with Japan’s Shiseido group's launch of Shiseido Beauty Innovations Fund, a China-centric initiative in partnership with Boyu Capital designed to fuel growth of local brands throughout the territory.

On the digital front, Deloitte outlines that the pandemic “has pushed companies to make bold moves in the creation and development of their digital strategies”. The acceleration in e-commerce is one obvious shift in the luxury community, with the continued growth in digital retail platforms including Tmall Luxury, JD.com and Luxury New Retail Alliance, a partnership launched in 2020 between Alibaba, Farfetch and Richemont. Deep-tech initiatives, such as the emergence of NFTs in the luxury space is one example. These non-fungible tokens allow consumers to authenticate luxury products and ensure a product’s transparency throughout its life cycle via the blockchain – as illustrated by the creation of Aura, a luxury-goods blockchain consortium launched earlier this year. The possibilities range from selling “digital collectibles” to gaming activities (NFTs can be used to create “dressed up” avatars).

In line with the times, luxury players have also accelerated their focus on sustainability – in both their strategies and their messaging with a focus on conception, through more sustainable materials, for example, and looking to their goods’ end of life. Most luxury fashion and accessories brands are implementing “official” second-hand sales platforms, while a focus on biomaterials has entered luxury mainstream with its own series of collaborations. “The industry is now accustomed to concepts like ethical fashion (production methods, working conditions, and fair trade); circular fashion (recycling, upcycling, and thrifting); slow fashion (sharing and renting) and conscious fashion (eco-friendly and green fashion).

How these topics continue to evolve in the coming 12 months, most likely another year marked by the pandemic, remains to be seen. But what is certain is that the luxury industry is not at a standstill.

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