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April 2020
Amid the coronavirus pandemic, every company’s survive, wholesalers are likely to adopt aggressive
first priority is, of course, to protect the health and commercial and discount policies—which, at least in
safety of employees, consumers, and business the medium term, could hurt the luxury positioning of
partners. Indeed, luxury companies have pivoted to brands that don’t have a concession model.
address urgent public-health needs: factories that
produced scarves and perfume now manufacture From global traveler to local shopper. The luxury
face masks and hand sanitizer, and many luxury sector appeals to a global consumer: 20 to
groups have made monetary donations to hospitals 30 percent of industry revenues are generated by
and other not-for-profit organizations. At the same consumers making luxury purchases outside their
time, with millions of people relying on the luxury- home countries. In 2018, Chinese consumers took
goods industry to make a living—from factory more than 150 million trips abroad; we estimate
workers and retail-store employees to small-town that purchases outside the mainland accounted
artisans and craftsmen—industry leaders are for more than half of China’s luxury spending that
planning ahead and wrestling with longer-term year.1 Asian shoppers buy luxury goods outside their
strategic questions to ensure the survival of home countries not only to benefit from lower prices
their businesses. in Europe, but also because shopping has become
an integral part of the travel experience: buying a
In this article, we discuss the impact of the crisis on brand in its country of origin comes with a sense
the luxury-goods sector. We then recommend two of authenticity and excitement. With the recent
sets of priorities for industry executives: short-term travel restrictions, an important driver of luxury
actions for “navigating the now” and longer-term spending has come to a halt, and we anticipate
considerations for shaping the future. only a gradual ramp-up in international travel, even
after the restrictions are lifted. That said, Chinese
consumers remain the biggest growth opportunity
A hard reset or a short-term blip? for the luxury sector. Brands, clearly, will need a
While it’s too early to quantify COVID-19’s total new approach to attracting luxury shoppers. To
financial toll on the sector, the pandemic has reactivate Asian luxury consumers in their home
certainly shaken some of the foundational aspects countries, brands can focus on creating tailored
of the luxury industry—and some of these changes local experiences, strengthening their digital and
could be permanent. omnichannel offerings, and engaging more deeply
with consumers in tier-two and -three cities. The
Wholesale Darwinism. Even before the pandemic latter will be challenging, given the limitations in
struck, independent luxury-goods wholesalers in both retail infrastructure and customer-service
Europe (many of which are small, family-owned capabilities in those cities.
boutiques) and some of the large North American
luxury department stores were already struggling— Shows without live audiences. Fashion weeks
in part because of luxury brands moving to vertical and trade shows have been essential ways that
integration over the past 20 years and, more recently, brands have maintained vibrant relationships
the growth of e-commerce. This pandemic might with consumers and trade partners. While we
force some of them out of business. The damage expect some return to normalcy on this front, we
could extend to brands that have not yet fully also believe that the luxury industry—in close
transitioned to a vertically integrated distribution collaboration with fashion-week organizers and
model, as well as to upstart brands that need trade associations—should explore alternative
wholesale channels to reach new customers and to ways to deliver the same kind of magic that
finance the development of their full collections. To these events offer when there are restrictions
1
Aimee Kim, Lan Luan, and Daniel Zipser, “How young Chinese consumers are reshaping global luxury,” April 2019, McKinsey.com.
Exhibit
In China, e-commerce user profiles shifted during the coronavirus outbreak.
E-commerce user profiles before and during COVID-19 crisis in China, %
Before crisis1 During crisis2 Before crisis During crisis Before crisis During crisis
≥46 11 14 ≥Tier 5 12 15
<¥200 30
41–45 8 33
11 Tier 4 20
36–40 11
25
14
31–35 19
25
Tier 3
21 ¥200–
29 ¥1,000 48
25–30 24 52
Tier 2 18
16
15
19–24 18 13 New 17
tier 1 10 >¥1,000 22
15
≤18 9 11 Tier 1 8 6
2
Olivier Gorter, Richard Hudson, and Jesse Scott, “The role of the chief transformation officer,” November 2016, McKinsey.com.
Antonio Achille is a senior partner in McKinsey’s Milan office, and Daniel Zipser is a senior partner in the Shenzhen office.
The authors wish to thank Anita Balchandani, Achim Berg, Raphael Buck, Aimee Kim, Emanuele Pedrotti, and Althea Peng for
their contributions to this article.