SHOPSMART AUTOS – CUSTOMER INFORMATION – JANUARY 12, 2021
Luxury after Covid-19: Changed for (the) Good? (PT.3)Three scenarios for 2020—and six consumption trends Consumption of luxury goods has weathered past crises. The impact of the 2002–03 SARS outbreak was softened by the fact that the industry was not as dependent on China as it is now. After the 2008–09 global financial crisis, increasingly wealthy Chinese consumers kept spending when western demand flagged. However, there are key differences this time around. Chinese consumers are more affected by Covid-19 than they were by the credit crunch; they are unlikely to ride to the rescue in quite the same way—and there is no other emerging cohort of luxury customers to tap. The coronavirus “fear factor” is greater than past crises too, weakening financial markets. Its impact on the real economy—job losses, GDP declines and so on—is set to be extensive. Finally, luxury shopping by travelers will take longer to recover, as countries maintain restrictions on travel to prevent further waves of outbreak and some people remain nervous about flying or cruising. Based on the information available so far, we have modeled three scenarios for the likely performance of the global luxury market in 2020. The different potential outcomes reflect a range of assumptions for the duration, geographic depth and intensity of the outbreak; other variables include expectations for GDP, consumer confidence and other macroeconomic indicators. The scenarios factor in immediate lost sales as well as the delayed impact of lower wholesale orders. The first scenario assumes a mounting recovery in demand in the second half of the year, limiting the overall market contraction to 15% to 18% for 2020 as a whole (see Figure 2). In the second scenario, the market would decline by between 22% and 25%, remaining in negative territory through the fourth quarter. In the third scenario, the market decline would be between 30% and 35% due to a more prolonged period of depressed sales. In all three scenarios, profit would suffer a steeper decline than sales. The personal luxury goods market could contract 15% to 35% in 2020 We expect that the pandemic will continue to reverberate through the industry in 2021. Some countries will likely experience a rapid rebound while others will see more of a “dip and stabilization” (see Figure 3). China and the broader Asian market could experience the strongest recovery; Japan, Europe and the Americas could feel a more prolonged impact, depending on how the real economy fares. Nevertheless, we think that medium-term market growth will be supported by demand from the Chinese middle class, an increased appetite for luxury goods among millennials and their younger counterparts in Generation Z, and the digital channel’s continued maturation. Make It A Champion Day!
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