No fashion shows, less production and less consumption: the pandemic hit the luxury fashion industry hard. The global chain of production was halted, and no lavish clothes could be produced.
McKinsey predicted in 2020 what the future of luxury fashion would look like in the aftermath of COVID-19. It did not look good: more than 70% percent of EU and US consumers were expected to cut back on fashion hopeful spending, with a global 40% to 50% of EU and US consumers to cut back in global goods.
According to McKinsey surveys, in the US, 58.7% of consumers said that they would cut back from spending, as 48% agreed that economic uncertainty was preventing them from buying goods that they would have otherwise bought.
Other predictions showed the fashion industry would suffer a financial distress of 80% decline in Europe and the US, and in particular the luxury sector, where 30% of its revenue is generated on its reliance of travel retail. The consequences of this were to be catastrophic. As businesses suffered, there would be no confidence in the stock market, and investments would be reduced, causing the industry its hardest blow since 2008.
These predictions became reality for a moment.Luxury revenues dropped by 23% at the beginning of the pandemic, and by the end of 2020, COVID-19 was still greatly damaging the industry, with 93% of its global profit continuously declining. The fashion titan LVMH announced in 2020 a 20% drop in its quarterly revenue because of the COVID-19 outbreak, and Luca Solca, an investment research analyst at Bernstein, said that “2020 is shaping up to be the worst year in the history of modern luxury”.
Other parts of the world suffered also suffered the consequences of lockdown on their fashion, retail and luxury industries. For example,When 90% of retail businesses opened back up again in China, the fallout was of 60% less consumption than during pre-covid times.
Moreover, production facilities were severely hit as they are located in countries such as India or Indonesia. Due to the lockdown, millions of people were left without jobs and thus it created a domino effect damaging the whole economy of the country.
As people did not want to buy expensive couture clothes to sit at home in, production stopped and retailers closed as well. Demand, in turn, just kept decreasing, creating a vicious cycle from those harvesting the materials to create the textiles, to the retailers whose job is to sell the final product.
On a global scale, businesses also had the unfortunate timing of the pandemic coinciding with a recessionary market, so they have had to survive the immediate crisis by making interventions that are considered as bold and fast decisions, to make sure that their businesses are stable.
There are many ways of intervening to survive a recessionary period: seeking out new markets, pursue strategic opportunities, and convincing investors to invest in their projects.
For example, implementation of short-term interventions have been key to avoid the economic plumb developing countries were headed towards. Small actions such as cutting costs of production, securing liquidity, and adjusting product assortments go a long way.
Although private investments have been shown to help mediate the crisis, they are not the only way to intervene. For example, India has been receiving humanitarian help, whose donations from different public and private actors have been used to create emergency investments in markets for stores to reopen, as well as support supply chains.
Even so, this strategy cannot fix all the damage that has been done by the pandemic. The gradual return to normality is predicted to be slow. Looking at similar past crises that may have impacted consumer sentiments, such as the 2003 SARS pandemic, it took about 6 months for the fashion industry to gain back its profits and numbers of consumers.
On the other hand, after the terrorist attacks of 9/11, the fashion industry took around a year and a half to bounce back. After the 2008 economic crisis, the fashion industry took about two years to recover.
However, although the 2.5 trillion-dollar industry suffered a lot during and post-Covid, official predictions were more negative than what the fashion industry actually experienced. Luxury found other ways to access and gain back consumers, for example from digital fashion shows, to interactive games, such as the recent campaign of Balenciaga and Afterworld.
Surprisingly, from 2019 to 2021, organic revenue growth increased. Today, LVMH is at the top of the list, with its businesses experiencing 40% more growth than in 2019, before the pandemic hit.LVMH’s revenue this year is of 17,5$ billion, as Moët champagne sales went up by 10% and Tiffany was included in the luxury group, notably increasing its consumers. LVMH has been the key driver of the fashion industry through the crisis, largely benefiting from Christian Dior and LV revenues in Asia.
Meanwhile, Hermes is also growing by 33% and so is Richmont, growing by 22%. The vaccine is a huge factor in explaining these positive growth trends. Now that businesses have reopened, so have people’s wallets. With millions of clients ready to travel and enjoy life as it once was, the movement of “revenge buying” and compensating for all of these months of isolation, is more popular than ever.
In the past two weeks, the Mode Féminine Paris Fashion Week has inaugurated a new luxury industry era. Fashion is in mid-change, it is opening its mind, and looking for ways to fit into the new world. Covid-19 has taught fashion businesses to innovate their ways to connect with consumers, through cutting out middlemen and optimising e-commerce for example.
However, although Paris Fashion Week has delivered 97 fashion shows in total, with the biggest brands showing the world their collections, two-thirds of fashion shows remained digital. Nonetheless, as fashion is heading into a new world, digital fashion shows might be the future of the industry. For example, Dior drew 11 million viewers with its Spring 2021 couture livestream.
Perhaps online luxury shopping has a big potential for the fashion industry, where the traditional views of couture and fashion could be left behind to pursue a more digital and interconnected world.