Consumer Behaviour In the Effects of COVID-19
You’ve heard about it on the news, you’ve seen people sharing information about it all over social media. Although it is possible to avoid COVID-19 with physical precautions, it seems virtually impossible to avoid it everywhere else. It has consumed all mainstream media and the thoughts of basically the entire population at this point. It seemed inconceivable to write a blog this month without mentioning COVID-19, as every—and we really mean every—sector of the world is being affected by it.
The world, the economy, and our lives as we knew them seemed to come to a screeching halt in mid-March as North America could no longer escape the inevitable. Virtually every industry in the world has been hit by major event cancellations, from the Coachella Valley Music and Arts Festival all the way to the 2020 Summer Olympics in Japan. Major fashion events affected are the 2020 Vogue Met Gala, the CFDA Awards (Council of Fashion Designers of America), and the CAFA (Canadian Arts Fashion Awards) [4].
Global and regional supply chains have been disrupted with the services sector, tourism, travel, and retail taking the brunt of it. Consequently, the decline in economic activity and constraints on people’s movements is impacting both manufacturing and services [3].
As a result, this crisis has created a paradigm shift in consumer behaviour. From purchasing masks and hand sanitizer at any cost, to being forced to shop online, to viewing everything on a livestream platform, the world has certainly been turned on its head.
So Who Will It Affect the Most?
As previously mentioned, the services sector, tourism, travel, hospitality, and retail are going to take the greatest toll. As such, the impact of COVID-19 on job loss will affect women in dramatically higher proportions than their male counterparts. This is because women are over-represented in the most affected sectors. The International Labour Organization (ILO) estimates that 58.6% of employed women work in the services (tourism, hospitality, retail, beauty, etc.) sector around the world, compared to 45.4% of men [3].
How does this affect consumer behaviour? Overall losses in labour income are expected in the range of 860 to 3,440 billion USD. The loss of labour income will translate into lower consumption of goods and services, which is detrimental to the continuity of businesses and ensuring the economy can bounce back after a major slowdown in business. In this regard, factual, consistent, prompt, and transparent information is critical in not just fighting the pandemic itself, but also for reducing uncertainty and boosting confidence at all levels of the economy, society, and workplace. A decline in—or lack of—confidence affects consumer spending and business investments, inducing economic slowdown and hindering recovery [3].
The World Turns to Digital
Ever since the invention of the World Wide Web in the 1990s, our world has been heavily reliant on the internet for everything from virtual communications to buying concert tickets to checking the weather. But in the wake of this new pandemic, our lives are arguably more digital than ever!
Of course, the obvious burst in online traffic comes from the online shopping sector as physical store fronts and non-essential businesses had to close up shop, driving consumers to do their spending online.
Online shopping is far from a new phenomenon. However, the mounting concern over COVID-19, especially now in North America, is having an impact on online shopping behaviour in particular. This is according to data from Adobe Analytics, which monitors the eCommerce transactions of 80 of the top 100 U.S. retailers [1]. This behaviour is changing because online shopping generally was a platform for consumers to indulge in fashion, entertainment, household items, etc.—those deemed “non-essential” purchases. What’s driving online shopping traffic—to the point of overload—is actually a major spike in essential goods purchasing.
As grocery stores, drug stores, and hardware stores become breeding grounds for possible infection, shoppers are purchasing virus protection equipment, groceries and other essentials online. According to Adobe’s analysis, the virus protection category of products, such as hand sanitizers, gloves, masks, and antibacterial sprays, have surged by 817% and toilet paper (though not officially deemed “virus protection”) has spiked by 186% [1].
How Has this Affected the Fashion Industry as a Whole?
Like every market in the world, the fashion industry is not immune to this economic decline. Fashion stocks have already seen a plummet amidst the current situation. The most notable of the hardest hit fashion stocks are G-III Apparel Group (down 27.1% to $11.07), Capri Holdings (down 26.2% to $10.29), RealReal Inc. (down 19.3% to $7.02), Tapestry Inc. (down 19.3% to $13.10), and Nordstrom Inc. (down 17% to $17.93) [4].
With this, fashion retailers are going to, and already have been, flashing discounts in order to keep interest, sell what they can, and bring in some form of revenue (even if it’s a small one). Unsold inventory is quickly piling up, prompting companies to cancel or suspend orders for new clothes, and in some cases, stop taking deliveries at already-full warehouses. For fashion retailers, one of the lingering and most damaging effects of the 2008 recession was the dependence on discounts. After their sales tanked, companies leaned on promotions to clear out all inventory sitting unsold and to get shoppers buying again. However, the problem that resulted was consumers coming to expect discounts, and even years later, hesitant to buy clothes at full price. The COVID-19 pandemic may result in this cycle repeating again [2].
In a new joint report, McKinsey and Business of Fashion offer a forecast on how the COVID-19 crisis will affect the fashion industry, stating, “Companies will turn to steep discounting to clear inventory for the rest of the year at a minimum, with a risk that the contagion of deep discounting could spread as quickly as the disease through the industry.” Shoppers will likely cut discretionary spending, as they anticipate the outcome of the current global economic situation [2].
Fear not, research indicates this brings potential positive and innovative futures for the luxury industry and the luxury resale market.
It’s Effects on Luxury Fashion
As we've already witnessed, the global pandemic has caused a major disruption to the normal Fashion Week cycle. COVID-19 hit Italy in the midst of Milan Fashion Week in late February, causing a number of designers—including Giorgio Armani, who bared a public audience to view his fall 2020 runway show—to rethink their show formats. As a result, other major design houses and fashion weeks alike have had to postpone or cancel their upcoming runway shows [4].
According to a report by Altagamma in association with Boston Consulting Group, it is predicted that COVID-19 can bring down global luxury sales between 30 billion Euros to 40 billion Euros. With that, major parts of the world are struggling with weakening demand and disrupted value chains [5].
It is thought that the outbreak of COVID-19 could move luxury consumers to assess and re-assess things from a different perspective as it may alter the key motivational factors for luxury goods consumption. The beliefs, values, and attitudes of luxury shoppers may drastically evolve, leading to changing consumption patterns and behaviours. On a positive note, one could hope that consumers may be driven to buy luxury for “conscientious value” rather than “conspicuous value.” As a result of this crisis, consumers may be willing to spend more on sustainable brands that reflect their own values and beliefs, as well as fair trade product consumption. It has even been thought that affluent consumers will rethink and re-prioritize their fashion consumption to make it less conspicuous and more responsive toward society as well as the environment [5].
If luxury brands get on board with this ahead of the curve, this would be a great opportunity for them to re-define their business models and create products that are authentic and responsible. This would require them to think deeper beyond the loud logo and pure brand loyalty strategy [5].
On the other end of the spectrum, another outcome of this pandemic could result in consumers indulging in hedonistic purchases to make them feel better in this stressful time (or better known as: retailer therapy). This behaviour has been termed as ‘revenge or retaliatory’ spending. Shoppers buy luxury products for ‘ego-centered’ values and how it makes them feel in regards to well-being, superiority, and status. If luxury retailers and brands tap into this, they’d know to make efforts to provide comforting experiences to consumers to help them cope with irrational fears [5].
Many believe that the fear of infection will go on longer than the virus itself. This could have a long-term effect on physical retail spaces and could ultimately result in a “new normal” of buying online to avoid stores all together. This will cause luxury retailers to provide more meaningful online experiences to connect and grab the attention of a competitive online shopping scene. If luxury brands embrace this now, this slowdown would be the right time for them to equip themselves to digitize the processes and upgrade their systems and technology [5], catering more to online traffic instead of physical foot traffic.
Research indicates optimistic predictions for the future of the online luxury resale market. This is due to the high dependency on online shopping, possible “conscientious value” shopping, and the potential need to purchase luxury at resale prices, instead of full retail price in this economy. With this, we should also remember that the luxury resale market offers a circular economy and consumer cycle, as opposed to the traditional buy/consumer cycle of make, use, dispose. This could be the leading edge that resale companies have over traditional luxury retailers going into the future.
It is said that the luxury industry remains hopeful to bounce back to previous consumers levels after the pandemic ends. However, this pandemic may bring a major change in the consumers’ mindsets and value systems that construct their luxury buying decisions. The brands that work to understand this and adapt accordingly and quickly will surely turn out to be the new champions moving forward [5].
How the Luxury Fashion Industry is Doing Their Part
But let’s remember that it is not all doom and gloom. On a positive and reassuring note, the fashion industry has been coming together to do their part, as well as raise funds to combat COVID-19’s global spread. Many influential figures and fashion designers are donating money and resources to hospitals and institutions around the world, especially to critically-impacted countries such as Italy [4].
Another example, parent company LVMH of Givenchy, Louis Vuitton, and Dior is switching manufacturing gears amid the global outbreak. All the perfume and cosmetics production facilities for the fashion giant began making hand sanitizer instead of luxury fragrances last month. They plan to donate their new inventory directly to French hospitals and authorities to fight the spread[6].
In Italy, the former epicenter of the pandemic, Donatella Versace and her daughter Allegra donated more than $222,000 to Milan’s San Raffaele hospital to fight COVID-19. The designer wrote on her Instagram, “In times like this, it is important to be united and support however we can to help all those who are in the front lines, fighting every day to save hundreds of lives." [6]
Also in Italy, Prada’s co-CEO’s Patrizio Bertelli and Miuccia Prada, as well as chairman Carlo Mazzi, announced they have donated two intensive care and resuscitation units each to Milan hospitals Vittore Buzzi, Sacco, and San Raffaele [6].
With these affirmative actions, it gives us heart and hope that we are in this together. It won’t be easy, but it will be conquerable with the help of those who can do their part. We urge consumers to do their part by buying conscientiously, support sustainability, and act responsibly. This pandemic is much bigger than fashion and the risks it brings to the industry; it has a larger, global affect. It will be interesting to see how the luxury fashion market steps up, responds, and adapts to this “new normal”.
We at Replica Jewelry Store hope you all stay safe, stay healthy, and stay connected during this period of uncertainty! Until next time, Luxers!
Sources:
1. Giselle Abramovich, “How COVID-19 is Impacting Online Shopping Behaviour”, Adobe Blog, March 26, 2020. https://theblog.adobe.com/how-covid-19-is-impacting-online-shopping-behavior/
2. Marc Bain, “Covid-19 is going to make fashion’s discounting problem much worse”, Quartz, April 8, 2020. https://qz.com/1834916/covid-19-is-going-to-make-fashions-discount-problem-much-worse/
3. “COVID-19 and the world of work: Impact and policy responses”. International Labour Organization. March 18, 2020. https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/documents/briefingnote/wcms_738753.pdf
4. Layla Ilchi, “How the Coronavirus is Impacting the Fashion, Beauty and Retail Industries”, WWD, March 17, 2020. https://wwd.com/fashion-news/fashion-scoops/coronavirus-impact-fashion-beauty-retail-fashion-week-store-closures-1203541123/
5. Sheetal Jain, “COVID-19 outbreak: Implications for luxury industry in 2020 and beyond”, Business Today, March 23, 2020. https://www.businesstoday.in/opinion/columns/coronavirus-in-india-covid-19-outbreak-implications-for-luxury-industry-in-2020-business/story/399002.html
6. Lindsay Weinberg, “Givenchy, Dior Perfumeries Now Manufacturing Hand Sanitizer”, The Hollywood Reporter, March 16, 2020. https://www.hollywoodreporter.com/news/dior-givenchy-perfumeries-now-manufacturing-hand-sanitizer-1284841
