As the whole of the world is now acutely aware, an outbreak of COVID-19 was detected in mainland China in December, 2019. To prevent the contagion of this deadly virus, as per government instructions, most private companies went into shutdown and many lost their jobs. Since activities of the government, organizations and the economy go hand in hand, it is inevitable that the emergence of a global pandemic is going to impact industries. And you could already say that the markets that have taken the hardest hit are the ones for “unessential products”. On top of that chart would probably be the luxury market.
Luxury is generally defined as lavish products, crafted with top notch materials, sold at lucrative retail outlets that match their sky high prices. Luxury products go above and beyond just “getting the job done” or “serving a purpose”. Rather, they are meant to make a statement about the user of the product, about their personality, status and lifestyle. Luxury products, however, are not meant to be afforded by anyone and everyone. They are made to be enjoyed by people who belong to a certain class of society. People who have “made it in life”. Yet, the demand for such products is most prevalent among youngsters, who usually don’t retain the most wealth in an economy.
As a result, an emerging luxury consignment market came thriving at the scene. The luxury consignment market is the resale market for luxury products. Imagine a scenario where you, an 18-30 year old fashion enthusiast, have been invited to this grand party where you feel like you must make an “impression”. So you decide upon wearing an Armani suit or carry a Louis Vuitton handbag. However, you’re broke and your pay scale is yet not high enough to afford one of these. In this situation, as you browse through the web on your laptop, something catches your eyes. RealReal or ThredUp, apparel resale startup websites, are basically offering the same products that have been “previously enjoyed”, for a fraction of the retail price. Now this amount fits your pocket. What do you do? The choice is obvious. You grab the deal with the swiftness of a rabbit.
Now let’s take a look at the other end of the spectrum. The person who put this up for sale probably hasn’t worn it in years. The product might’ve been lying around in his/her closet gathering dust. Now instead of leaving their once favorite suit/handbag for it to rot, the person decides to free up some closet space for new arrivals, whilst making a quick buck. Therefore, they decide to list the apparel or accessory on one of these resale platforms. Recently in the past few years, the stigma towards purchase of “previously loved” luxury products has deteriorated significantly. Prior to COVID-19, the luxury consignment market grew to a staggering net worth of $24 billion and was predicted to reach $51 billion by 2023. The major target market for this business are the millennials and Gen Z. Some of the biggest names in the luxury consignment market are The RealReal, ThredUp, Macy’s, ReBag etc. As claimed by ThredUp, in comparison to new merchandise sales, the business for resale of luxury apparels grew a shocking 21 times more rapidly. Further research revealed that people aged 18-37 years were 2.5 times faster in accepting the purchase of used products as the new norm relative to the elderly ones.
However, the arrival of the pandemic has shaken people to their core and made them reconsider their priorities. It’s not only the financial means, but also in the sense that people have now developed a new understanding of “life”, and how they wish to live it. The average human being now looks past the materialistic realms and focuses on things that “actually matter”. The crème de la crème for most luxury brands are affluent consumers aged within 30-50, who usually don’t have the time to pursue their long lost passion. For example, a businessman who always wished to learn to play guitar would rather purchase a Fender electric guitar now rather than fulfilling his plans of buying Gucci shoes. The reason for this is because he now has more than enough time in hand to learn guitar, which was impossible under normal circumstances. And the other reason is that he doesn’t have to visit the office or have parties to attend where he must wear these shoes.
One more reason for the luxury industry to face backlash is the halt on travelling as airports are shut down temporarily. Around 20-30% of the revenue generated by the luxury industry comes from consumers making purchases from foreign countries, since shopping has almost become an integral part of travelling. In 2018, Chinese consumers reportedly made above 150 million abroad trips and more than 50% of China’s luxury purchases were made overseas that year.
Additionally, the lockdown has prevented fashion weeks and trade fairs, which is one of the fundamental aspects to a luxury brand’s success and maintaining customer relationships. Fashion week organizers and trade associations in collaboration with luxury brands need to sort out alternative ways of conducting such programs without the involvement of “live audience”. Furthermore, the fall in income has led supply to increase dramatically in the luxury consignment market. However, the demand isn’t necessarily proportionate to the supply. Masses of people are trying to survive the crisis by liquefying their “unnecessary” belongings. But who will purchase them? Suppose that you, an average consumer, are currently concerned with buying the basics and surviving the global recession rather than splurging. Moreover, where will you wear the luxury items amidst this lockdown? Thus, an imbalance is created between the supply and demand of used apparels.
The stock value of luxury brands have also faced huge devastation. For example, RealReal’s IPO was priced at $20 per share, which rose to $28 in the pre-covid situation. But in March, 2019, it hit rock bottom as prices went down to $6 per share. Currently, the prices of shares have swung back to $14 each, which is still quite low, considering their initial price.
Despite all the barriers, the future of the second hand market for luxury goods looks promising. Established luxury brands such as Gucci and Burberry have reached agreements with resale platforms like The RealReal and built sections for used products within their own stores. On the contrary, some brands like Nudie Jeans have capitalized on the situation by prioritizing sustainability with a value system. Basically, it provides lifetime repair on jeans free of cost. Hence, you never have to throw them in the bin! Additionally, if you get bored of the jeans someday, Nudie purchases them from you and sells them to somebody who is interested at a discount. This appeals to the ethical consumer, since by doing this, not only is the environment saved by avoiding the process of ”producing everything new”, but also the product is never really disposed of, polluting the environment. Similarly, many other brands are remodeling their business structures. The RealReal has shifted to curbside pickup and virtual appointments from inside sales and “white glove” treatment for consignment partners. Hermes has decided upon reducing dividend payments to shareholders and no increments in managers’ salaries. Bernard Arnault, the CEO of LVMH, has declared giving up on a 2 month’s salary as his company reallocated its resources to aid the production of hand-sanitizers, facemasks and PPEs.
In times when physical contact is strictly discouraged, several companies benefited from digitization. Maintaining brick-and-mortar outlets amidst such a crisis quickly became an issue for many luxury brands, as sales dropped but the rents remained high as these outlets are usually located in pricy real estate areas. Alternatively, many brands look up to e-commerce as a way out, establishing their own websites or using third party e-tailers e.g. Amazon and eBay. However, online sales can never really match the essence of brick-and-mortar stores, as luxury shopping to most consumers is reliant on stories and experiences rather than simply the product itself. Thus, although e-commerce is far from preventing the fall, it surely did provide a soft cushion at the back of it.
Every situation has silver linings and crisis is the avenue for new growth. Brands can take advantage of the situation for further long term benefits. A lot of new brands “with no heritage” can show their true values through actions in times of distress. Similarly, established brands can display how true they are to their values and what they are willing to do in order to stick to them. Something that is news today may become a point of discussion and case studies in university marketing courses in 20 years’ time. Many brands are actively making donations and providing other kinds of support in order to help the deceased and fight the disease, bringing goodwill to their accounts.
Ultimately, the luxury market will pave its way out of these tough times. Fashion and luxury will never die out. Maybe not as prevalent, but people’s wish to dress up won’t perish. The luxury consignment market still has a long way to go, as the temptation to purchase a luxury item at a fraction of RRP is always enticing and the socially responsible consumer will always vouch for it. With a few changes in efficiency and a revolutionary shift towards digitization, the industry is capable of surviving the blow. If today is the sunset of bad times, we can surely hope for a sunrise of good times.
