What is the next normal in the luxury landscape during and after the COVID-XNUMX crisis and how are the trends changing? A big bang for the benefit of agile, digital, sustainable and social business models
By expert Julia Riedmeier "Neo Luxury"
Author: Julia Riedmeier
The Next Normal of the Luxury Landscape - What Comes After Revenge Spending
The COVID-19 pandemic has and will change fundamental aspects of the luxury industry and its understanding. A look into the Baccarat crystal ball remains cloudy as the future, the Next normal, is too uncertain. It remains to be seen whether the luxury landscape will become more fragmented or more polarized in terms of companies and consumers. Especially when the initial revenge spending is over. It can be said with certainty that the luxury market is sensitive like an orchid that blooms when there are signs of a crisis and starts to bud when there are signs of recovery.
After the financial and economic crisis of 2008/2009 and the following Chinese Bulimia, the luxury market would have entered the New Normal. 2020 generally looked promising for the luxury industry. The 2019 financial year came to a positive end - according to Bain & Company with sales of EUR 281 billion worldwide and thus four percent growth - and the first weeks of 2020 seemed to continue the road to success. But suddenly the pandemic shook the global normality.
Big Bang by Covid-19 - agile, digital, sustainable, social
After initial survival strategies, the crisis prompted us to question: what are we doing here, what is important to us, what is relevant? As a company and entrepreneur, as a consumer. What is our drive, concern, purpose? That always "higher, faster, further", the pursuit of growth, sales, margin has known no limits in recent years. Consumption was often (still) driven by the next hype, the next limited edition, the next instagrammable travel moment. Sustainable? Hardly likely. Now we come to a stop. To a reflection. To change. Hopefully. The Big Bang is here and we suddenly had to react. In an agile, digital, sustainable, social manner.
But it remains to be seen whether this attitude will prevail in the long term after this bang. Because, as can be observed, these movements were visible before, but the change was sluggish since the Sense of Urgency didn't seem acute enough. After overcoming the stiffness of the shock and taking the first steps into the Next Normal, the general desire for the usual normal seems very strong and old patterns tempting. On the consumer and company side. But now it is a matter of proving the backbone of a company to use its strength and role in the sense of a Purposeful leadership with a social, ethical, ecological awareness and above all to be serious.
Importance of NEO luxury in times of crisis - quality over quantity
Julia Riedmeier and Dr. Jörg Meurer developed and defined the phenomenon of NEO luxury in their recent study. Accordingly, NEO luxury is the third evolutionary stage of luxury, after the traditional luxury of ownership and the new luxury of experiences. As a purpose-driven luxury, it now seems more relevant than ever. Characterized by seven trends, of which the top trends sustainability (relevance: 72%), health and mindfulness (relevance: 70%), digitalization of luxury including the digital detox counter-trend (relevance: 71%) show the direction to the Next Normal. What is new is that the weakest trend "lean luxury" (relevance: 35%) and thus the conscious renunciation, focus on consumption could get a strong headwind against the current background.
The crisis is intensifying it and is showing us that we can get by with what we have and put quality even more before quantity. This also raises the question of what and to what extent luxury consumers will still be willing to spend money, if economic and financial systems are subject to dynamics that cannot be estimated. So then, is non-luxury the new luxury? Or is the luxury of ownership experiencing a revival as an investment luxury – also because experiential luxury is currently not possible?
NEO Luxury Definition
Source: LBR Luxury Business Report, NEO Luxury Study
If luxury is a return to ownership, are the winners icons like a Montblanc Meisterstück, a Porsche 911 or a Robbe & Berking collection? And losers "Gucci" newbies who are waiting for a hunt of trendy truffle pigs? Regardless of the direction in which luxury is moving, one thing is clear: consumption will become more conscious. One particular opportunity lies in the seal of "Made in Germany" and manufacturers that impress with their national supply chains, which thus can best meet the consumer's desire for transparency, social and ethical responsibility as a basic attitude.
In the middle field are the trends of sharing and 2nd life business models (relevance: 58%), increasing luxury casualization, as well as democratization up to public luxury (relevance: 50%). Those will find their way and position. To quote Andreas Henke from the INLUX / KEYLENS NEO luxury study: “If there are business models for sharing and 2nd life, they will work – until I realize at some point in the crisis that I have only borrowed. It has no substance; it is ultimately against human evolution."
The seventh trend is that of individualization, customization, co-creation (relevance: 75%). This will continue to have its relevance. However, it remains questionable whether in the pole position and in the form in which we know this trend. Because we have seen for ourselves that other needs are currently in the foreground.
Success factors for navigating into a next normal
Specifically, the following three crash barriers can provide a framework for the Next normal:
1. Ecological and social sustainability
Companies should fulfill their corporate duty more than ever. To take responsibility for the community and the environment in which they operate in as a corporate citizen. Act in a socially responsible manner, treat internal and external stakeholders respectfully, and offer services and products that do not fire the narcissistic force, but have a positive effect on the ecosystem.
Digitalization is an important driver and enabler for that Next normal. Even before COVID-19, the elementary function and integration of digital elements became apparent. Whether for the consumer or company in terms of products, communication, distribution or processes. The following questions should be asked: Which analog formats, parts of the value chain exist and which can be digitized and how? How can a personalized marketing experience be created? How can consumers be reached and excited by e-commerce options? Investments should therefore be shifted to digital. Topics such as lead management come before brand building.
Many companies are discovering a new customer. The end customer. For a long time, this was left to retailers. CRM is often a foreign word, as is systematic lead management. So it's no wonder how little luxury brands know about their customers. But exactly this knowledge is essential and direct access to end consumers is now becoming a key factor. Especially young target groups like millennials are looking for direct contact to the brand online. To get informed, inspired and to interact with the brand. Assuming that, according to Bain & Company, 85% of the world's luxury consumers will be younger generations, the opportunities for luxury brands should pulsate.
Losers and winners of the luxury industry
In general, 2020 will be a bad year for the economy and the luxury industry is not spared. It is up to the actors themselves to redesign the industry. To use the crisis as an opportunity, to throw old things overboard and to go new ways that would have been (almost) unthinkable a few months ago. The purpose and innovation momentum of NEO luxury is more important than ever. Those who emerge from the crisis as winners or losers could essentially depend on the following factors.
- How healthy and authentic was the company before the crisis – company values become visible and it shows which ones are lived and which are just empty words.
- How agile, digital, autonomous is the set-up of the business model - in the sense of agile reaction, digital readiness, cooperation with suppliers and sovereignty over the supply chain.
- The general response to the crisis.
Four out of 18 management implications have emerged from the INLUX / KEYLENS NEO luxury study as top measures that should not be missing on any CEO agenda: expanding digital competence, making customer centricity a strategic core issue, management towards a multi-generation, -nation team character and change of the current business model. Even in times of COVID-19, it can be seen that they maintain their validity and become even more important. In combination with the key factors mentioned, this can provide orientation at a time when almost everything seems possible.
You can download the NEO Luxury study here .