Deloitte on the dot The pandemic’s impact on the luxury goods market By Nina Sanchez-Felismino During this period of great anxiety and concern over health and safety, one of the things that may have been farthest from people’s minds is luxury. High-end products, which during “normal” times are already seen by some as excesses, could fade even more into the background as the world grapples with keeping economies open and citizens out of hospitals.
But the luxury goods market, surprisingly, proved resilient during the pandemic. According to Deloitte’s latest Global Powers of Luxury Goods report, more than half of the top 100 companies were profitable, with 13 posting double-digit net profit margins even though the top 100’s FY2020 revenues of $252 billion were down from $281 billion in the previous year.
The Global Powers of Luxury Goods is an annual publication featuring the world’s top 100 largest luxury goods companies and the trends shaping the market. The ranking is based on consolidated luxury goods sales in FY2020, which Deloitte defined as the financial year ending within the 12 months from January 1 to December 31, 2020.
As with all other sectors, the world of luxury goods has had to undergo significant transformations to stay nimble and relevant during this crisis.
Although their names were built on quality at any cost, more and more luxury brands are acknowledging the need to shift to more sustainable practices as customers and regulatory requirements reflect the growing urgency to act on climate change. Companies are focusing on incorporating sustainability into the design and production of luxury goods, in many instances entering strategic partnerships with innovative startups that help reduce their environmental impact.
Salvatore Ferragamo, Paul Smith, and Hugo Boss, for example, have all ventured into the use of food waste to produce sustainable materials. Ferragamo used a silk-like twill fabric derived by Italian company Orange Fiber from citrus juice production leftovers in some of its collections, while the other two brands both launched sneakers made of fiber from waste pineapple plant leaves.
Digitalization also become a key component of long-term strategies even for brands that resisted the digital space for so long. The pandemic, which closed down boutique stores for months on end, finally prompted luxury watchmaker Patek Philippe to sell its timepieces online. (It might interest you to know that Rolex and Chanel remain e-commerce holdouts.) Companies that have long embraced the digital world are taking this opportunity to refine or even develop new digital solutions and in the process create new products.
One such digital product is the non-fungible token (NFT), which represents ownership of a digital (cryptographic) item or asset created through blockchain technology. “Non-fungible” means the item cannot be replaced with something else and the NFT holder is its unique owner — a concept that aligns with the luxury goods market’s promise of exclusivity and distinction. In the high-fashion world, NFTs are being used to create digital skins for avatars in video games, allowing heritage brands to reach the Gen Z market, for whom gaming is a highly popular activity.
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