The Eco-political factors affecting the Luxury Market

Many have been quick to sound the death knell for retail in the wake of the coronavirus pandemic, but perhaps a more accurate observation is that the outbreak has accelerated the shift towards buying and selling goods remotely.

Interestingly, this trend has even become prevalent in the luxury retail market, the sudden closure of brick-and-mortar boutiques has forced brands to realign their focus and think more innovatively about how to meet suddenly changing consumer trends.

While luxury brands have been quick to adapt, however, the future of this market remains relatively uncertain. So, how have luxury brands coped with Covid-19 so far, and what are the long-term portents for this high-value marketplace?

How is the Luxury Market Faring?

At its heart, the luxury market is reliant on a number of variable factors, with global geo-political stability one that underpins big-ticket purchases across the globe.

However, the socio-economic impact of Covid-19 is still in its infancy, which means that the luxury and high-end markets have yet to feel the full effects of the outbreak. To this end, a large number of physical store closures in the sector have been voluntary, with companies focusing almost exclusively online and even traditional establishments such as Sotherby’s auction house seeing a 16% increase in virtual sales during March.

Online luxury retailer RealReal even reported a 40% rise in search demand from Cartier earrings, while the brand’s scarf sales soared by 24% year-on-year during March and April.

Of course, the situation is a little more complicated globally, particularly with an estimated 46% of all luxury purchases coming from China and Asia as a whole. This region was initially decimated by Covid-19, and this has undoubtedly had a short-term impact on the market’s performance.

This has been cited as the main reason for the 14.4% quarterly revenue drop recorded by Kering, which is the French umbrella company for brands including Gucci, Bottega Veneta and Pomellato. Brands like Christian Dior have also experienced a 15% drop in Q1, and this remains a short-term cause for concern for the market as a whole.

Appraising Asia’s Recovery, and Can Taiwan Help to Shape the Future Market?

So, while luxury brands have not yet faced the full force of the Covid-19 fallout, there’s no doubt that many are looking to the Asian region to help them return to full health.

According to Bain’s latest industry report, it’s predicted that the industry will have recovered fully by the end of 2022, at which point sales will have returned to 2019 levels of $304 billion.

However, this premise is based on the restoration of China’s luxury market, but could other regions emerge as new and potentially lucrative high-end hotspots in Asia?

The short answer is yes, with Taiwan offering a relevant case in point. This island nation posted 2.91% GDP growth year-on-year in 2019, while the retail value of the region’s apparel sector was estimated at $8.37 billion.

Sure, this is dwarfed by China for now, but Taiwan definitely boasts a burgeoning and relatively stable luxury market that’s also supported by a strong and robust local currency.

These factors may combine to make the Taiwan market even more attractive to luxury brands post-coronavirus, especially when you also consider the recent decline of the Hong Kong sector.

Taiwan’s army of wealthy consumers also represents a huge boon, and there’s no doubt that the emergence of this type of market could help the luxury sector to recover quicker than the initial estimates.

 

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