The coronavirus pandemic has pushed the world into a humanitarian crisis with consequences on businesses around the world. As it continues to spread, global tourism and retail sales are severely hit.
In the past ten years retailers have shifted to foreigners-friendly marketing, rather than focusing on the bulk of the customers in the United States. In 2019, Chinese consumers accounted for around 35% of the total spend in the global luxury market and 90% of the growth in global luxury goods (Bain Capital).
In this context, how can luxury retailers weather this storm? A range of outcomes is possible. Decision makers should not assume the worst.
U.S. retailers worry about the extent to which American consumers will also be cutting their spending due to the current uncertain times.
In our opinion, three broad economic scenarios might unfold: (1) a quick recovery, (2) a global slowdown, and (3) a pandemic-driven recession. We share McKinsey's analysis that the current prevalent pessimistic narrative (which both markets and policy makers seem to favor as they respond to the virus) underweights the possibility of a more optimistic outcome to COVID-19 evolution.
In addition, we believe that brands should both take care of their staff and consider refocus on the US digital consumer by revamp their targeting and loyalty programs.
Past peak-crisis, we invite retailers to “refocus and rediscover the American online customers". This can be done by reallocating resources to solidify market shares in the U.S.
US consumers are likely to increase their online shopping as witnessed in many countries. Consumers concerned by the impact of the virus on their business and their social life will likely find some stress-relief by turning to online shopping, at least to feel or re-created a sense of normality. In addition, consumers crave instant gratification products, especially during difficult times.
Digital shopping behaviors might extend to other retail segments such as luxury goods by accelerating pre-crisis trends: in 2019, fashion e-commerce accounted for 20 percent of the total fashion retail sales in the U.S.
Business services providers witness two clear opposite behaviors from brands. According to Yoni Elmalem, managing partner at Inbox America, a digital AI marketing and consulting firm for brands– states “while some brands are getting into ‘freeze mode’, others double-down on their digital ads spend targeting US consumers directly in their homes. Retailers who decide to stay close to their customers and maintain targeted online investments will spare themselves being forgotten when recovery is here."
Brands should carefully monitor for the peak virus and plan ahead to be ready to reinvest and come back into the market when new cases start to decline.
Business community executives have certainly a role to play to signal to consumers that fear is not an antidote against this crisis. Proper sanitary measures and trust in the fundamentals of the US economy are.