Following a period of steady growth rates (2,7% CAGR 2010-2020), the personal luxury goods industry is estimated to have reached €217Bn global sales in 2020, equivalent to a 23% annual decline. While online benefitted indirectly from the Covid-19 pandemic (sales increased by 49%), offline channel was severely hit (declined by 32%) as stores were forced to remain closed.
“We have all experienced a difficult year of rapid, unexpected changes and luxury has not emerged unscathed.”Bain & Company
Covid-19 ended exacerbating industry’s weaknesses, as sales have been growing at the expense of profitability (75% of global fashion sales are estimated to incorporate some sort of discount) and efficient inventory management was consistently underestimated.
“Inventory-to-sales ratios are at their highest point since 2009 and we’re all too familiar with the ever-growing markdown sections at most retailers. Estimates indicate that dead inventory is costing the US retail industry as much as $50 billion a year.”Business of Fashion
Consequently, as Covid-19 spread worldwide and stores were demanded to close with a number of reference players ended filing for bankruptcy – Neiman Marcus, Barneys, J. Crew, Brooks Brothers, Debenhams, Lord & Taylor, Forever21 to name a few – and others announcing major store closures – Victoria Secret (250 stores), Tailored Brands (up to 500 stores), Michael Kors (179 stores), Nordstrom (19 stores), Sears (51 stores), Macy’s (125 stores).
“Valentino is sued for $207 millions after shutting Manhattan boutique over pandemic…in seeking to end the lease, Valentino said the pandemic left it unable to operate the store.”Reuters
Dependent on virus effective containment, Bain & Company expects the personal luxury goods industry to generate €243Bn sales in 2021 and only reach 2019 volumes by 2023. However, unless the industry is capable to embrace efficiency and move towards digital transformation (seamless online integration), path to recovery will only be temporary and industry’s sustainability will continue at risk!