Coronavirus corrodes luxury industry; losses to mount over $1 billion

KEY HIGHLIGHTS

• Current revenues of luxury goods market in India stand at $9.09 billion

• Domestic luxury market is likely to boom after lockdown ends as international travel goes down

• Concierge services continue to deliver high-end services to their members

• Major new trends to emerge post lockdown with experiential luxury taking a backseat

Whether it's a private jet trip for a family stuck away from home or to make Louis Vuitton masks and gowns, the luxury brands are trying to keep the momentum going even as the coronavirus outbreak has wreaked havoc to the global luxury business. In India, the luxury market is comparatively smaller than matured markets like the US and Europe. As per Stastica, the current revenues of the luxury goods market in India stand at $9.09 billion in comparison to $63.12 billion in the US. However, the impact has been felt in the same proportion across countries.

"Everything is shut; there are no transactions happening. All the key luxury segments, be it retail, real estate, hospitality, and auto, are not operating at the moment. It's difficult to assess the impact in value terms but it would be at least a billion dollar," says a luxury consultant.

"While it's too early to quantify COVID-19's total financial toll on the sector, the pandemic has certainly shaken some of the foundational aspects of the luxury industry-and some of these changes could be permanent," says a recent McKinsey & Co.

Globally, the luxury market is likely to contract between 60 billion euros and 70 billion euros in 2020, as per Bain & Co which has predicted the impact of pandemic on the global luxury industry to last till 2021 and beyond due to the high exposure of industry to the coronavirus. However, the industry players are hoping that the global crisis could be a blessing in disguise for India. How?

As per the McKinsey & Co report quoted above, nearly 30 per cent of the luxury customers, including in India, make purchases outside of their home country. That's because the purchases in matured markets have lower duties, and customers get access to new collections which would arrive India after a time lag.

If the international travel goes down, the luxury shopping in India could pick up. "It's not that the wealth of the ultra HNIs (high networth individuals) are getting wiped out. Post recovery, their capacity to spend on luxury is going to be significant," says Mishti Bose, the CEO of London-headquartered luxury concierge service Quintessentially.

Since the lockdown, high-end concierge services have actually seen tremendous amount of requests from their private members. Soon after the lockdown, Quintessentially executives personally delivered essentials like groceries and even supplies such as masks, hand sanitisers, thermometers, and basic vitamins and medicines to their members.

Apart from these basic services, special assistance had also been offered - whether it was arranging last-minute private charter flights to helping members in relocating to isolate their families in holiday homes. "After a few days of settling down in the lockdown, the members have started asking us to arrange learning sessions. We have organised (virtual) curated sessions on cooking, music, art appreciation, and single malt appreciation in addition to guided mediation courses with life coaches," says Bose.

Meanwhile, analysts are predicting major disruption in the luxury market post the lockdown period. For instance, while the international long-haul travel (in commercial airlines) would take a hit, the market for private jets would boom as there will be demand from uber-rich to travel in private modes of transport.

There could also be a possibility of airlines flying business class-only planes to cater to the high-end travellers. The current pandemic would also likely reverse the Millennial-led trend of giving preference to experiential luxury over product ownership. Why? It's because consumers would avoid going to crowded places such as restaurants, cruise ships, and luxury resorts - to create 'Instagrammable moments' - and brag about goods instead.

"Luxury which is essentially global in nature is going to become more localised. While domestic market would get a boost, the local luxury retailers would have to find ways to overcome the long-term disruption in the supply-chain of luxury products which are largely manufactured in Europe and China," says the consultant quoted above.

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