“We are not ready for the next epidemic,” Bill Gates stated in 2015. In 2016, virologist Dr Larry Brilliant also predicted a global virus spread originating from China and expanding all over the rest of the world.
Yet despite this lapidary prediction nobody was eventually prepared, and the only counteract to COVID-19 in the early 2020 is a medieval lockdown for more then four billion people in all countries worldwide.
The lockdown has produced an incredible shock in economies by changing all social dynamics of the superglobalized world with permanent repercussion in the international supply chains.
First of all, it is a human tragedy that has harvested an impressive number of victims, but now it is also an economic disaster that has already pushed all countries in a deep economic recession.
How fragile are we? Given the COVID-19 impact, this question comes to mind of most of the people around the planet.
One thing is crucial, before a vaccine is discovered. In an interconnected world like ours today, the pandemic will be curbed once two-thirds of world countries have COVID-19 under control. Global virus requires a global response!
After a vaccine is developed, the richest countries will be the first to benefit from it – to a disadvantage of the poorest ones that will have to pay with a greater number of deaths.
As of today, passenger air flight industry has lost some 80% of the routes and most of the companies will have problems to reopen them in the future, unless they get help from local governments, like Lufthansa and Alitalia. Luxury is deeply interconnected with tourism and travels.
The globalized world today has got a new general rule, social distancing.
The customers’ willingness to buy non-essential goods is extremely low and all luxury industry players are confronting cashflow drain and uncertainty which make it hard to make plans for the post-coronavirus era in which the world will never be what it was before.
Iconic department stores in the USA such as Neiman Marcus are closing down and this will also cause damage to all suppliers and designers.
Despite this, extreme luxury is responding with high demand for super luxury products and the COVID-19 is reshaping the luxury trends into what they never were in the past.
Consumers and companies are reacting so fast, the world in lockdown is becoming more digital, more inclusive, thus transforming content of communication, and opening the way for the fashion and luxury industry to new horizons never expected before.
Given this environment, Invest Foresight discussed specifics of the luxury industry with Giuseppe Gullo, lecturer at the Russian Academy of National Economy and Public Administration and luxury expert at RANEPA International Summer Campus in Kazan. Mr Gullo (www.linkedin.com/in/GGullo) is founder of GG Luxury Consulting Group, a boutique Luxury Strategy Consulting firm based in Milan, with partners in Moscow and Hong Kong.
What is currently happening to the fashion and luxury industry?
The industry is heavily impacted by the COVID-19 as the “digital era” has already disrupted fashion and luxury companies in the last 3-5 years. Before COVID-19, most of the super and premium brands were struggling a lot in communicating with Zed Generation and Digital Native, most important luxury costumers in Asia and entire world. It’s therefore a crisis in the crisis.
So with two simultaneous crises, will we see the end of the fashion industry?
Fashion and luxury industry is very resilient and will not collapse because of COVID-19. COVID-19 could be an accelerator of the speed, maybe, an accelerator of the end of the first digital luxury crisis. And we do not have to forget that luxury is first of all a language, an instant language of communication between people; this will never end as language speaks and tells one’s story.
Therefore, is fashion industry an immortal industry?
I mean, every crisis is a big change, and fashion and luxury companies have in their DNA an ability to change quickly. Brands must reinvent themselves every season, many times per year, reshaping the mentality of their customers by convincing them to buy again.
What does that mean?
Let’s consider the ability to engage the same customer at least two or four times each year; from spring/summer to autumn/winter collections. Today, with “fast fashion” there are also “pre-spring” and “pre-summer” collections, “capsule” collection, “flash” collection and “cruise” collection and then accessories of brands with leather goods, perfumes, eyewear, etc. No other industry has to run so fast to stay alive. Luxury industry has the secret formula of survival!
What is the secret of luxury?
Creativity is the secret! Pandemics, wars, and other social crises often create new attitudes, needs and behaviors which must be managed. Only the creativity is crucial in seizing and creating new opportunities and finding new paths to growth. After 2008 financial crisis, we saw the birth of dozens of brand new multi-billion dollar businesses like Instagram, WhatsApp, Uber, Airbnb, Dropbox, Slack; these businesses were launched by young people that lost their jobs or couldn’t find them in big companies due to that crisis.
What kind of creativity is luxury demonstrating today over the lockdown period?
We have to consider creativity of the companies and creativity of the people that is manifested by the luxury language. For example, the fastest companies in making facial protective masks were luxury and fashion companies like Armani, Prada, LVMH, Zegna, Baldinini and many others; also Lamborghini started to utilize engineers for producing some ventilators.
In the lockdown times, what are people expressing with the luxury language you have mentioned?
Lockdown has broken the traditional relationship between time and space. In regular life, in six hours (including check-in procedures, etc.) you can reach Venice from Moscow. Within these six hours, you could have changed a country, maybe a climate, and for sure means of transportation from cars to boats. With space limited due to lockdown, the perception of the time also dramatically collapsed. The days seem to be very long now. This is yet the beginning.
What will come afterwards?
After that, a different time perception is opening more space to the people to discover new dimensions and new values like spending more time with family members, or more time in cooking healthy food, or more time to spend in wellness in doing a new Yoga course, or spinning hour in remote lesson organized by Technogym. These became the new luxury for the entire population of the world.
What other types of “new luxury” have been discovered by the people?
The people have also discovered the value of “distance meetings” with Zoom, Telegram, WhatsApp, Meet, Teams, etc. for saving commute time and increasing the meetings efficiency. People have also discovered that many trips made in the past were merely useless business habits. Indeed, an old slogan says that “physical presence is power”, but at which price!!! Will people go back to commuting to work? Some changes for the time being will become permanent in the future – and starting from today!!!
What about the impact in social media?
“Social distancing” is the most recommended rule originating from the pandemic experience, but with “social media” it is only a “personal distancing” because “sociality” today is practiced through Instagram, Facebook, WhatsApp, WeChat, YouTube, etc., especially for the younger generations. They tend to believe customers reviews more that brand advertising campaigns!! And this is crucial also for the future of the luxury companies.
Do you refer to retail distribution system?
Yes, exactly. Young population discovers the world mainly through old media like TV, and interacts and communicates with the world through social media. They discover brands through the screen of their mobile which has become the new door to the brand shop/boutique. For buying, they do not need a physical shop, but only a presence of a brand in the social media world. The youngest population is a step ahead, utilizing mainly voice system like Alisa from Yandex.ru or Alexa from Amazon to interact. That’s why luxury companies are now facing the challenge of in fact transforming themselves in sort of media companies. Media Content Manager and Social Media Marketer are the most researched positions from Luxury Head Hunters and people fight to have best talent with them.
What happens to the hard luxury?
This is a very interesting question to understand how people communicate with luxury language.
Superyacht rent is booming these days for “superyacht” over 47 meters long with full services aboard including teachers for educating children and master chef for giving live lesson to parents.
NetJet, private jet company owned by Warren Buffet, is fully booked in the USA and EU with its aircraft fleets – and now is looking for new private jets to rent; that company offers service of private airport hubs that give no access to crowdy public aviation. No-crowd situation is a new value for new luxury.
In Geneva, the Bijoux Hotel is offering extreme luxury residence with COVID test and specialized doctor available 24/7, at almost €10,000 per day; Saudi Arabia’s Royal Family has already reserved rooms there.
In Europe, the top end grocery shops have seen increased demand for super expensive food.
Niche apparel brands have sold very expensive Yoga wear pieces also going at clients home.
In the extreme luxury, for example, the first day of Hermes shop reopening in China’s second-largest Guangzhou flagship store was a booming $2.7 mio sales record with strong demand for Birkin Himalayan diamond studded bags. Guangdong is the wealthiest area in China with Guangzhou being its capital. People discovered the wealth destination as new luxury. Wealth destinations will attract more tourist flow and new brains for development.
How are superbrands reacting to the pandemic?
At the beginning of the lockdown period, the fashion and luxury companies with developed mind-set to communicate with their audience (customers, fans and employees) started with creating internal Instagram channels for their employees Yoga lessons; others like Moncler published a favorite music compilation list from their Chairman Mr Remo Ruffini in order to be closer to their audience sharing personal insight. Later, some other brands started launching home office wear collection.
Many hard luxury brands have repositioned their offer in social media channels they never expected to do in the past, as Hublot that launched its last model on WeChat, snubbed in the past as cheap distribution channel. Patek Philippe dealers were authorized to sell online too.
What are influencers doing these days?
Influencer economy has fast reacted by shifting to charity like Chiara Ferragni, one of the most important in the world, that in few days raised €2 mio from her huge audience, for helping hospitals. Influencer is a system to communicate and customers will privilege those brands that utilized responsible testimonials when demands restart in the post-COVID era.
What about tech companies?
In 2003 SARS period, Alibaba was crucial for finding surgical equipment across China and its help gained the trust of the Chinese people. Today again, Alibaba and Amazon have served locked down population with every necessity. The digital platforms like UBER Eats, Deliveroo, Globoo and others have guaranteed food refurbishment at home. In Italy very successful start up Kampaay.com has incredible success to deliver at home video lesson and ingredients for making aperitive and finger food. Technologies play a major role in keeping things running during crisis. Look at the Virus App control in South Korea for virus spreading over population. Look at TMall (Alibaba Group) in China that has opened Luxury Soho Platform hosting superbrand window like Balenciaga, Moncler, Armani; or look at Farftech in the UK that just today has received new investment for China growth worth $125 mio from Tecent, WeChat owner with one billion users.
Now these high-tech platform companies will be requested by governments to pay taxes also locally!!
And what are companies doing for adapting themselves to the present-day situation?
Companies are accelerating their digital communication and e-commerce process they have already started as response to the “Digital Crisis” of the last five years; they understood that today content luxury communication is based not on products only, but on culture of sustainability, environment protection and entertainment at customer home, so they increase Yoga lessons and online fitness masterclasses shifting from the supershops in high end street to customers’ home for continuing to engage them through digital media livestream in Instagram, Facebook, Tecent. Livestream is really a booming channel of distribution, also for personal customization that is most required today.
How do supply chains operate in the fashion industry?
For the luxury, 40% of the production is localized in Italy and superbrands like Gucci, LV, Prada directly own factories in Italy and thus increase their competitiveness. The rest of the production for different brands of various positioning is located in Asia, mostly in China, but also in Cambodia, Vietnam, Thailand, Bangladesh and India. This was the effect of globalized world that concentrated such production at the most efficient vendor in terms of price. This system today is in a big trouble. We will see more “patriot purchase” at every level. This is an opportunity for local companies to resume production that was moved out of the country.
What will be the new outcome?
Globalization is a phenomenon that will not end with COVID-19, yet it will be reshaped and will shift towards more regionalization. Here also, tariff wars and embargoes have started the “rethinking globalization”. What is happening with facial protective mask is showing how critical concentration in only one area of production is. Still today China is also the unique zipper worldwide producer and this has created problem with the apparel and accessories production here in Europe at the beginning of this year, when China was in lockdown. Also, Apple is reshoring some part of the iPhone accessories production in the USA. Cobalt mines that are located in Africa will cause a slowdown in mobiles production if some major pandemic happens there.
Are there any new trends in fashion industry?
I think we have to treat the COVID-19 as an accelerant of every aspects of the luxury industry. Everything will shift more to digital and tech, considering that shopping is an essential experience for both women and men!!
Since 2008, there was the start of the “luxury casualization” or so called “sneakerization” with more informal style, while COVID-19 has accelerated more of “Home Office Wear” and “Sport and Yoga Wear”.
Since 2009, the number of shops openings was steady, and soon thereafter there was a repositioning from big to smaller shops, in a while shops numbers have started to decrease. COVID-19 will accelerate the closing of redundant shops in favor of digital ones and e-commerce, as well as for second-hand and rented products.
In the past, a shop was a theater of a brand show and story; today, the theater of a brand show is the screen of mobiles of the new consumers. These consumers, for example, reached 16 million record of online Chinese visitors via Tecent at last February 2020 Armani Show in Milano, the first show celebrated with no live visitors when China was hit by the coronavirus. The companies that in the past started a digital transformation, will surf the wave that COVID-19 tsunami has created, while the companies that didn’t will be out of the market shortly.
What is the lesson that fashion and luxury industry has learnt from this pandemic?
This is not easy to answer right now, in the middle of tempest, as in every crisis there is “a shock phase”, and then “a reaction”, and after that “a reaction to the reaction”.
Some countries still are in a shock phase and others are in a reaction phase.
But one fact is sure, nobody will renounce shopping which makes people happy, especially after the depression of a lockdown, hence a shopping experience will be curative!!
As of now, we can see what Giorgio Armani, “King George”, is saying to the fashion world. He wrote some weeks ago an incredible letter to WWD in which he is calling the new fashion system to be free of extreme speed that does not allow creativity to generate art. He is very critical of the “fast fashion” that has reduced the life of the art creation to almost 20 days.
I think that King George’s statement has the power to announce to the entire fashion and luxury world a new season that will inspire “a new renaissance” in that system.