The luxury industry has been hard hit by travel restrictions in recent months, as many would-be buyers tend to make their big-ticket purchases while globetrotting to exotic locales. But as news of multiple potentially game-changing coronavirus vaccines makes headlines and consumers become increasingly fatigued of sitting at home, many are at higher risk of being stung by the travel bug.
That’s welcome news for luxury retail, which has faced profound losses during this unprecedented time, according to McKinsey’s State of Fashion 2021 report with the Business of Fashion. Their data revealed that popular travel destinations saw massive declines in arrivals during the first half of the year, with locales in Europe’s Southern Mediterranean sub-region, and its surrounding areas, seeing 73 percent fewer visitors than the year prior. Northeast Asia saw an 83-percent slowdown in traffic, while Instagram-worthy spots like Thailand, Hong Kong, Singapore and Macau, which usually draw in millions, saw very few travelers this year.
The report says Hong Kong bore the brunt of the slowdown, seeing 91 percent fewer tourists cross its borders between January and September than in 2019. But fashion meccas like Paris, Milan and London also welcomed far fewer big spenders from China, Russia and the Middle East than usual.
It will take considerable time for travel to ramp up, and tourism may not reach pre-pandemic heights until 2023 or 2024, the report said. Two-thirds of fashion executives told McKinsey that they believe it will take two to three years for travel retail sales to return to their former levels of growth. But domestic travel has already proven to be a bright spot in tourism’s recovery, they said, with intra-region travel in China and Europe picking up over the summer.
While travel restrictions continue to impact regions across the globe, many top-spending international shoppers from China, South East Asia, the Middle East, Russia and the U.S. say they’re ready to pack their bags, according to data from tourism shopping tax refund firm Global Blue. Two-thirds of shoppers from these regions said they would do so as soon as border restrictions ease up, in fact, up from just half in June.
Affluent shoppers who frequently make purchases internationally demonstrated the strongest desire to get back to their high-rolling habits, with 72 percent saying they would do so when quarantines lifted—up 5 percentage points from July. Even more wealthy traveling shoppers (73 percent) from China said the same, while 92 percent of survey takers from Saudi Arabia, Kuwait, UAE and Qatar, and 100 percent of shoppers from Russia agreed.
What travel recovery looks like around the world
Global Blue says Asian destinations could see a faster retail recovery due to the easing of travel restrictions and a lower concentration of coronavirus infections in the region. Half of Chinese shoppers and two-thirds of Southeast Asian shoppers now believe that Asian locales are safe for travel.
Asian governments have reinforced their thinking with new travel agreements that ease burdensome measures at borders. Visitors from mainland China and Hong Kong can now visit Singapore without quarantining, for example. Air travel throughout Asia has already bounced back to 2019 levels as of August, Global Blue found.
Shoppers from the U.S. and Russia will be the ones to fuel Europe’s retail resurgence, it added, with 65 percent of American respondents saying they would feel safe visiting the continent once travel restrictions let up, more than the half of Russian shoppers who said the same.
U.S. consumers have already demonstrated a desire to travel domestically, as trips to Latin American countries like Mexico reached 80 percent of pre-Covid levels in October. Meanwhile, flights from Russia to Turkey increased by more than 5 percent year over year in August.
“It is highly encouraging to see a strong desire to travel amongst international shoppers,” said Mathieu Grac, vice president of intelligence at Global Blue. “Although we are still amid the Covid-19 crisis, we hope that these findings along with the news of an effective vaccine and the opening of travel corridors, particularly in Asia Pacific, signal a healthy restart to the international shopping industry in 2021.”
Grac went on to say that retailers should be ready to accommodate the set of affluent and avid shoppers who are ready to resume travel. They have a new set of needs post-pandemic, he added, including “online-to-offline solutions, limited social interaction and exceptional hygiene.”
While the luxury sector has long set the standard for the most covetable products and customer experiences around, it’s evolving in those areas, much like the fashion industry at large.
While luxury-loving shoppers still relish in the fine touches that come with purchasing in store, the modern consumer is looking for more from labels than doting associates, especially during the age of Covid.
Behind luxury’s evolution
According to Mazars, the luxury business model is undergoing a metamorphosis to become more conscious and connected as millennials and Gen Z shoppers assert their dominance and desires.
The global auditing and consulting group says young luxury shoppers dubbed The HENRYs—an acronym for “High Earners Not Rich Yet,” who earn between $100,000-$250,000 per year—want to be made to feel special through personalized interactions with brands that span both the physical and digital realm. Not only are they digitally savvy—they’ll also vote with their wallets for labels that take a firm position on sustainability and ethics.
In the past, luxury brands have relied on their cachet and exclusivity to drive sales—and it’s been a winning strategy. But they’ve been slower to adopt to the digital age than some of their counterparts, and light years behind the DTC upstarts that have proliferated in recent seasons, Mazars said. In 2010, luxury shoppers began a robust migration online, spending upwards of $5 billion on the web. Third-party luxury marketplace Net-a-Porter shepherded in this new era of digital luxury commerce, and by the end of the decade, shoppers were spending nearly 10 times that amount.
Smart labels have sought to harness the power of digital to tell their own brand stories and showcase a streamlined, high-quality customer experience. With their financial means, luxury labels and fashion firms must also invest in the data collection expertise and IT infrastructure needed to inform a targeted understanding of their patrons’ wants and needs, analysts said.
Compelling consumer experiences and digitized services are some of the forward-looking moves these labels must take to remain relevant. The group cited tools like YooxMirror, a mobile application rolled out by the online retailer that allows shoppers to virtually try on clothes by styling an avatar, or Prada’s digitally connected dressing rooms, which allow shoppers to scan the electronic tag on a garment to see other available sizes, colors and complementary items, as examples of innovative tech tools that further the shopper experience both in store and remotely.
“Some independent brands were born as digital natives focused on experiential marketing and customer-centric services,” Mazars said. “The majority are luxury traditionalists, however.”
And in the interest of tapping into The HENRYs desire to do better by the environment—and the people who craft their luxury wares—labels must become more transparent, collaborative and focused on sustainability, Mazars said.
The Covid crisis has shone an especially bright spotlight on the luxury resale market and “should drive investment in new services innovations,” Mazars wrote in its report. Secondary markets are booming in China, while across the U.S. and Europe, many young luxury shoppers have reined in spending, making secondhand finds even more attractive. Sales of pre-owned goods are skyrocketing three times quicker among Gen Z shoppers than any other group, it added.
Take-back and recycling programs like Eileen Fisher’s Renew platform, for example, can keep salable products out of landfills while providing a sales outlet, while partnerships with platforms like Vestiaire Collective also keep goods in circulation and give luxury shoppers an outlet for unwanted items. Augmented repair services from labels—or partnerships with restoration specialists like The Restory—can ensure that consumers enjoy their purchases longer, and that luxury goods retain their value.
The pandemic could “help drive a rapid deepening of sustainability in the luxury industry,” Mazars said, with luxury leaders already taking robust steps toward circularity in both their upstream and downstream supply chains. Burberry, for example, has entered into sustainability planning collaborations with smaller companies, like Mylo, a mushroom leather startup. It’s likely that partnerships like these will become central to a greater behind-the-scenes shift toward more eco-friendly practices, Mazars noted.
“We see the brightest long-term future for luxury players who take seriously their clients’ desire for sustainable consumption,” it added. “That starts with circularity and finding solutions for recycling luxury products.”