The impact of Covid-19

Luxurious brands are facing a significant challenge under the Covid-19. The demand declined massively since the outbreak in 2020  with a big loss in sales in the high-growth market of China. What is worse, the travel restrictions across Europe and the US causes a drop in demand. For example, the store closures in Italy indicated that Chinese shoppers are not allowed to purchase at the level before crisis. This has led to the main problem to luxurious brand likely.

Few customers in luxurious brand stores

When I was traveling to Madrid in September 2020, I noticed that the tourists declined massively, which I could see the main street is not as crowded as before. Moreover, there was always long waiting line in front of the luxurious stores but it is totally different now. What I saw was few customers with some employees, which amazed me a lot and made me realized how the crisis damage the each industry. I believed the excess inventory must be much more after the pandemic, so where are they delivered?

Burned them rather than the discount

Unlike fast-fashion brands, the luxury brands have a high conscious on the product value. In order to protect the brand image, some luxury companies refused to give the discount on the products. In stead, they burned the excess inventory. For example, Burberry destroyed excess clothes, perfume and accessories worth £28.6 million in 2018. Under the government intervention, other brands like Louis Vuitton and Dior made a commitment to stop burning excess products. Moreover, French government has required domestic brands to recycle or donate any products they intended to destroy, which aimed to make it sustainable.

Where inventory should be delivered now?

“Nobody really knows.” By Credit Suisse sell-side analyst Guillaume Gauvillé

Seasonality dominates not only ready-to-wear brands but also luxury brands. Normally, some luxury companies deliver off-season products to the outlet malls such us La Roca Village in Barcelona or Bicester Village in London, which is the main way to deal with the excess inventory. However, the leader brand like Louis Vuitton, Chanel, Dior do not give sales in outlet and even in stores. They tried to redistribute inventory to the region which could help assuage but the effect seemed to be limited because the pandemic damaged all over the world.

Therefore, inventory management could cause problems for most luxury brands in 2021. Additionally, the other challenge will be navigating the potential impact on their positioning and how they are viewed by consumers.