From Hermès to Rolls-Royce, luxury brands are selling escapism to lead us – and the global economy – out of the Covid-19 pandemic
High-end retail typically rebounds dramatically faster in times of crisis, and as the world opens up and embraces a new normal, from demand for private planes to island escapes, luxury leaders have a key role to play in kick-starting the global economy
It may sound counter-intuitive, but I am certain the luxury sector will lead the rebound of the global economy once the coronavirus pandemic is over. At first glance this does not seem to make sense because the luxury sector is a relatively small part of the global economy. And often, when a crisis hits, many commentators are quick to write off the luxury industry and predict the emergence of austerity and “stealth consumption”.
If the past is an indicator for the future, this will not happen. Bain & Company showed in the 2019 “Luxury Goods Worldwide Market Study” that the global luxury market grew between 1996 and 2019 with a compound annual growth rate of 6 per cent, two times the growth of global GDP. This time frame included the dotcom bubble burst, the 9/11 attacks, Sars and the subprime and financial crisis of 2008/2009. In the entire period there was only one significant drop with an 8 per cent year-on-year decline in 2009, but 2010 was already exceeding 2008, significantly accelerating the growth of the luxury sector henceforth.
When we look at economic indicators after crises, high-end retail typically rebounds dramatically faster to pre-crisis level than low-end retails. And maybe the most alarming factor is the unemployment rate, which is typically one of the slowest to fully rebound. After the 2008 crisis, the unemployment rate in the US had only recovered to around 20 per cent of the pre-crisis rate by 2011. This indicates that a crisis hits customers and brands that are the most vulnerable hardest.
The Covid-19 pandemic compounds challenges that many luxury brands are already facing. But it also offers opportunities for those brands that excel in inspiring customers, creating value for them, evoking dreams and initiating memories. In fact, in times of crisis, luxury brands should connect stronger than ever before with their customers.
Luxury brands also need to tap into what I call the hidden drivers of luxury. Personal protection is such a hidden driver. It is the number one reason why the demand for private aviation is skyrocketing, and why those who can afford it try to organise their holidays at secluded places, far away from the crowds, such as private islands.
The director of one of the most exclusive luxury hotels in India told me recently that wealthy guests now often book the entire hotel, just to make sure they have total privacy. Gregory Day, the CEO of the Malibu Beach Inn, one of the most luxurious and intimate hotels in California, calls his approach “barefoot luxury”, focusing on the total well-being of his guests. Lauren Berger, who organises ultra-luxury travel experiences told me that her services are in high demand as people “seek not only absolute hospitality, but complete peace of mind”.
Another hidden factor is luxury as the ultimate treat. Consequently, highly personalised high-end beauty and well-being rituals are rebounding rapidly according to several industry sources.
Milk – a hyped, disruptive “affordable luxury” make-up brand that highlights “good ingredients, epic payoff” and celebrates optimism and inclusiveness – is a front runner among a cluster of inspirational, young and funky beauty brands that focus on a relaxed way of feeling good.
But good luck trying to buy high-end dumbbells or fitness equipment anywhere in the world. With home gyms booming, waiting times can be months now in the luxury segment. The more individualised and luxurious, the higher the demand.
And in fashion, brands like Hermès are showing an optimistic, relaxed and inspiring approach, generating dreams. “Our cave of wonders” is just one of the descriptions that Hermès uses on their website to describe their collection. It’s all about taking consumers from reality into a world where they can disconnect and just be.
Rolls-Royce has just revealed the first major redesign of the Spirit of Ecstasy – its iconic bonnet ornament. While luxury car enthusiasts started an immediate discussion whether the redesign is genius or an attack on history, Rolls-Royce got its brand featured everywhere, getting in front of potential luxury customers that so far may never have considered or driven what some people call “the pinnacle of luxury”.
All these examples underline that luxury truly is the ability to create extreme value. Brands that manage to excite their customers through inspiration, innovation, and aspiration, always with the customer at the centre, will be driving the rebound of luxury. And through the most influential brands, the luxury sector will lead the economic rebound at large. Isn’t a little excitement what we all need in these challenging times?