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  • Writer's pictureColliers | Columbus


Written by: Anjee Solanki

COVID-19‘s economic impact has affected consumer confidence levels, most notably within mature economies like the U.S., Canada, France, Germany and the U.K. There is a vast disparity between those who are feeling the greatest impact financially and among those who are not.

Reopening economies have seen an uptick in retail sales as consumer sentiment and confidence for shopping in-store is tested. Spending for non-essentials and discretionary expenses has revived retail sales in the EU, matching, and in some cases exceeding 2019 levels. British retailers are slowly gaining traction as 72% of U.K. consumers feel more confident about their household finances, and 58% have the ability to spend on non-essential items. MarketWatch reported a slight increase of 1.9% in U.S. retail sales for the third month in a row, even though the economic outlook for continued growth is expected to slow down.

Wealthy Consumers Engage in Personal Reward Shopping

Higher-income households have scaled back on consumer spending, mostly because they haven’t had a choice. Traditionally, these consumers splurge on luxury retail when traveling overseas, capitalizing on duty-free discounts and markets where the currency exchange is most favorable. Luxury retailers in the U.S. and Europe have experienced this phenomenon first-hand serving international tourists from neighboring countries, Asia and the Middle East, all pre-COVID-19. The same applies to U.S. travelers.

With the majority of wealthier shoppers grounded, experts predict they will seek out luxury items as a personal reward for the inconvenience of sheltering-in-place. This initial trend took shape after the coronavirus leveled off in China. Consumers flocked to luxury retailers in a “revenge shopping spree” with high-end designer shops like Tiffany & Co., Burberry and Richemont reporting an improvement in sales with their Asian reopening flagships.

Bloomberg reported that luxury items like handbags, cosmetics and cars are likely to be the top categories for consumers engaging in retail therapy. In the U.S., luxury car manufacturers have seen an increase in sales with high-net-worth and aspirational consumers interested in owning brands like Porsche and Mercedes. Consumers may be preemptively gifting themselves a set of wheels amid concrete concerns of scarcity for new car inventory. An insider close to the situation shared that “car inventory has drastically reduced both from sales and lack of replenishment. The majority of our models are manufactured abroad, and there is concern that we will not maintain supply for the increased demand, especially if there is a resurgence of COVID-19 this fall.”

All this speculation has the luxury retail market wondering if the U.S. and Europe will also rebound, following China’s butterfly effect. Leaving nothing to chance, popular luxury brands have begun to take matters into their own hands.

Capitalizing on the Personal Reward Retail Therapy

Chanel, Dior, Ferragamo, Gucci, Louis Vuitton and Prada are some of the affluent retailers implementing price hikes in China, Italy and the U.K., as Vogue Business reported. This tactic spurred a shopping surge in Shanghai, with folks queuing up to score merchandise ahead of the increase. Analysts with Jefferies Financial Group attribute the opportunistic pricing strategy as an attempt by retailers to recoup on earlier revenue losses in 2020.

Embracing E-Commerce

Shopify has seen an increased interest from luxury fashion retailers and lifestyle brands to their Shopify Plus platform. “Brands have started using Shopify as a complement to their omnichannel strategy, to build better connections and relationships with their customers. It’s much more beneficial for brands to own their customer relationships versus selling products through a marketplace, whether you’re a streetwear startup or a massive luxury fashion house,” shares Kevin Donnelly, Senior Product Manager at Shopify. The customer journey has expanded, with retailers also focused on after-care or additional services.

Reinventing Fashion Week

The Council of Fashion Designers of America, Inc.’s (CFDA) New York Fashion Week (NYFW), slated for later this month, has integrated e-commerce extensions into RUNWAY360, the multimedia portal being used to showcase American designer collections virtually. This year’s show will blend live vignette sets curated through a design partnership between top designers Jason Wu, Rebecca Minkoff and Christian Siriano, and Lowe’s home improvement brand.

Headliners Marc Jacobs and Michael Kors have opted out of NYFW to orchestrate their presentations. Meanwhile, other designers concerned with financial pressures and prioritizing employee safety have skittishly bowed out. In advance of Paris Fashion Week later this month, Valentino decided to remain in Italy to launch their collection closer to home with a creative focus on supporting the local economy.

The Lifestyle Brand Pivot

Luxury brands have seen double-digit growth in Q2 over 2019, signaling an upward trend toward recovery for the segment, with some unlikely champions. Macy’s has seen a boost in luxury sales in recent months and very similar to their corporate sibling, Bloomingdale’s, has plans to pivot their focus “as a way to attract affluent consumers and raise profit margins.”

Of course, Amazon is in on the action, too. The e-commerce giant has plans to launch a luxury brand platform just in time for the fashion show season. The luxury retail hub will host a handful of ready-to-wear labels and accessory brand shops on the site. It will also provide the benefit of a massive warehouse for the clothing manufacturers to use for production and distribution.

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