Luxury Goods Retailing: Inc Impact of COVID-19 - International - August 2020
Overview
 
The COVID-19 pandemic is set to have a significant impact on the luxury goods market in 2020. We are forecasting an 18% decline in reported sales for the year and, although we do expect sales to bounce back in 2021, we feel they are unlikely to return to pre-COVID levels until 2022, given the ongoing disruption to trading in so many parts of the world and the lack of a viable vaccine at present.

The changing shopping habits of Chinese consumers, who are one of the main drivers of luxury sales, pose a threat to the global luxury market. Mintel’s consumer research highlights that 65% of Chinese consumers aged 18-49 have bought luxury branded items in the last 18 months, rising to 74% of young people aged 25-29. The age of the sample differs slightly in the other markets surveyed making direct comparisons difficult but the level in Italy and Spain was 33%, in the US it was 31%, in France 28%, in the UK 23% and in Germany 21%.

While Chinese consumers previously favoured buying luxury goods in-store whilst abroad, COVID-19 has accentuated a trend for the repatriation of sales of luxury goods to mainland China and this is likely to continue into the medium-term. As part of a growing trend for ‘Identity’, there is also growing support amongst Chinese consumers for local designer brands.

The COVID-19 pandemic has accelerated the need for brands to be online, especially in a sector that has been slow to jump on the digital bandwagon. While consumers in most countries continue to shop for luxury goods in-store in their home country, there has been a big increase in online purchasing in the last year, with the UK seeing the biggest rise, according to our consumer research. There are significant opportunities for luxury brands to capitalise on this change in shopping behaviour and those companies that prioritise digital investment, as we have seen at Armani with its partnership with YNAP, stand to benefit.

Key issues covered in this Report
●	The impact of COVID-19 on the luxury goods market globally
●	How the market will fare post-COVID-19
●	The value of the luxury market by products
●	What regions have the largest share of the luxury goods market
●	Launch activity and opportunities for 2020 and beyond
●	Shifts in purchasing of luxury goods, and purchase behaviours in last 18 months
●	Attitudes towards purchasing of luxury goods across different countries.

COVID-19 market context
This update on the impact that COVID-19 is having on the market was prepared on 24th August.

UK
The first COVID-19 cases were confirmed in the UK at the end of January, with a small number of cases in February. The government focused on the ‘contain’ stage of its strategy, with the country continuing to operate much as normal. As the case levels rose, the government ordered the closure of non-essential stores on 20th March. 

A wider lockdown requiring people to stay at home except for essential shopping, exercise and work ‘if absolutely necessary’ followed on 23rd March. Initially, a three-week timeframe was put on the measures, which was extended in mid-April for another three weeks. 

The Health Protections Regulations 2020 came into effect on 15th June allowing the reopening of all non-essential stores in England as well as the mandatory use of face coverings on public transport. Pubs, restaurants, hotels and hairdressers were able to reopen on 4th July, with some beauty businesses following on 13th July.

From 24 July, it became mandatory to wear face coverings in shops and supermarkets. Rules on travel remain fluid: from 10th July, travellers from more than 50 “low risk” countries no longer had to self-isolate for 14 days, but on 28 July the removal of Spain from this list of low-risk countries dominated headlines in the UK, followed by Belgium on 8th August 2020. The UK imposed local lockdowns in Leicester and a number of areas in the north west of England from 30th July 2020.

China
The first COVID-19 cases were confirmed in Wuhan, China on 30th December. As the disease quickly spread in January, the central government ordered the closure of Wuhan and another 15 cities in Hubei on 23rd January. Severe restrictions were imposed on travel, work and public activities in these cities during the lockdown period. Meanwhile, other Chinese cities took similar containment measures and required people to stay at home with the exception of essential matters.

The lockdown period lasted for 76 days and officially ended on 8th April, after the first time Wuhan reported no deaths since January. At the time of writing, China is seeing very few new cases – most of which are imported. The majority of domestic social activities and businesses are back to normal.

US
The first COVID-19 case was confirmed in the US in January 2020. On 11th March, the World Health Organization declared COVID-19 a global health pandemic, and on 13th March, President Trump declared a national emergency in the US.

Across the US, state-level stay-at-home orders rolled out throughout the months of March and April, and non-essential businesses and school districts across the nation closed or shifted to remote operations. At the time of writing, all 50 states have relaxed restrictions, allowing businesses to operate with varying levels of social distancing measures in place. However, a resurgence of COVID-19 infections has driven some states to slow down or reverse course on reopening plans.

France 
The coronavirus pandemic reached France on 24th January 2020, when the first COVID-19 case in Europe and France was confirmed in Bordeaux.

On 12th March, French President Emmanuel Macron announced on public television that all schools and all universities would close from Monday 16th March until further notice. The next day, Prime Minister Édouard Philippe banned gatherings of more than 100 people, not including public transport.

The following day, the prime minister ordered the closure of all non-essential public places, including restaurants, cafés, cinemas and nightclubs, effective at midnight. On 16th March, Macron announced mandatory home confinement for 15 days starting at noon the following day. This was extended twice.

On 11th May the government began a progressive lifting of the lockdown, with a gradual reopening of society and the economy. It offered retailers some relief by allowing them to reopen. From the beginning of August 2020, there has been a resurgence of cases and in several cities, including Paris, use of masks has become mandatory on some streets and in tourist areas and from 1st September masks will have to be worn in workplaces where people share space in offices and factories.

Germany
After a period of lockdown and strict social distancing, in mid-April Germany began to ease some of those rules, with the details in the hands of Germany’s 16 federal states. 

Shops smaller than 800 sq m had been allowed to open since 20th April, alongside car dealerships, bicycle shops and bookshops as long as shoppers adhered to social distancing. As of 27th April, shops of all sizes were allowed to reopen, with extra hygiene and social distancing measures. On 15th May bars, cafés and restaurants were allowed to reopen and engage in activities other than takeaway and home deliveries. On 3rd June, the government allowed travel to all EU countries and the UK from 15th June.

Italy
On 9th March 2020, Italian Prime Minister Giuseppe Conte announced a 21-day national lockdown that was extended until 13th April as a result of the continuing high level of COVID-19 cases across the country. On 14th April, a slight loosening of lockdown measures was announced, with selected retail stores, such as bookshops, stationers and baby and children’s clothing stores, allowed to re-open but with strict rules on customer numbers and hygiene.

Italy’s Prime Minister Giuseppe Conte had announced some relaxations from 4th May, with people being able to visit relatives in small numbers but having stay within their own region. Bars and restaurants would be allowed to open for takeaway service, not just delivery. Retail stores that were not allowed to reopen under the previous week’s slight easing of restrictions reopened on 18th May.

The government extended its nationwide COVID-19 state of emergency on 29th July 2020 until 15th October 2020. This currently requires people to wear face masks on public transport and in public spaces, including in shops, public offices, hospitals, and clinics, as well as workplaces where maintaining a social distance of at least 1m (3ft) apart from each other is not possible. Additionally, on 17th August, all nightclubs were closed until at least 7th September, while the wearing of face masks was made mandatory in public areas where groups could gather from 18:00 to 06:00. Both these measures were in response to an uptick in infections, particularly among younger people.

Spain
The situation in Spain escalated during the last days of March, when the Spanish Prime Minister, Pedro Sánchez, tightened up its national lockdown, ordering all non-essential workers to stay at home for the next two weeks from 30th March. The measure came two weeks after the PM declared a state of emergency, and in response to COVID-19 cases peaking in parts of the country. The state of emergency and national lockdown was announced on 14th March. Non-essential goods stores were to remain closed while supermarkets were operating with reduced opening hours, providing hand sanitisers and tissues to clean baskets and trolleys.

President Pedro Sanchez announced the easing of the lockdown measures from mid-May, allowing adults to walk or exercise again if the number of cases continues to decrease. Following the example of Germany, the Spanish Confederation of Commerce (CEC) reopened smaller stores – up to 400 sq m – with reduced opening hours, and progressively moved on to larger stores and shopping centres.

Spain allowed tourists from some countries, including the UK, to enter the country without quarantining from 20th June 2020. From 4th July 2020, following a spike in cases, local lockdowns have been ordered in parts of Spain.

Economic and other assumptions

The latest growth forecasts from the IMF, published in June 2020, were even more downbeat than they had been in April 2020, reflecting the continued impact that COVID-19 is having on economies around the world. This will inevitably impact on the market for luxury branded goods, as recession leads to job losses and declines in average levels of wealth. 

FIGURE 1: Projected real* GDP growth, 2020 and 2021
 
Real GDP growth (annual % change) 	2020 	2021 	
	% 	% 	
China	1.0	8.2	
Japan	-5.8	2.4	
France	-12.5	7.3	
Germany	-7.8	5.4	
Italy	-12.8	6.3	
Spain	-12.8	6.3	
United Kingdom	-10.2	6.3	
United States	-8.0	4.5	

*at constant prices

Source: IMF/Mintel 

Products covered in this Report
Report scope
Most people have an idea of what constitutes a luxury item, but it is very difficult to quantify it. However, one can say that a luxury good is branded, and it is the goods that are luxury, not the retailer. It is up to the retailer to merchandise the goods in a way that sets them off to their best advantage.

Mintel market sizes
Since it is the brands that are luxury and not the retailer, Mintel has calculated the size of the market from the aggregated turnover of brands that we think are viewed as luxury brands, adjusted where necessary to add a retail margin and the sales of smaller players.

Defining luxury goods
Luxury goods are priced high and that is often justified by a very high level of craftsmanship. They must have an element of exclusivity and be out of the reach of most mass market buyers, certainly in terms of regular purchasing. However, defining the market can be difficult because perception of luxury can be very subjective. What counts as luxury for one consumer may be considered high-end, mass market by another. The introduction of ‘masstige’ goods, which are mass-produced goods marketed by brands as luxury items, further complicates matters.

Luxury goods do have certain clear characteristics, which make them something that some people aspire to. For the purpose of this report, in order to be considered luxury, items must have all or most of the following characteristics:

●	Luxury goods must be highly priced – they must be beyond the reach of the average consumer, thus increasing the desirability of the product (known as the Veblen effect)
●	They are made with high levels of craftsmanship – often made locally in company-owned factories, to ensure quality
●	They are aspirational
●	They are regarded as symbols of a higher status
●	They are discretionary purchases – luxury goods are non-essential
●	They are sometimes fashion leaders, though this is not always the case.

Product breakdown
In our analysis there are three main categories of luxury goods to which we add a miscellaneous group of smaller products:

●	Fashion & leather goods
●	Fragrances & cosmetics
●	Jewellery & watches
●	Other – writing instruments, eyewear, furniture and other home goods and other miscellaneous items. It may also include a small element from hotels (eg Bulgari), spas and bars.

Food, beverages, tobacco, electronic/electrical goods, automobiles and services, such as travel, are all excluded from our market size.

Geographical breakdown
We provide a broad regional breakdown of our market size. This is based mainly on data published by the leading luxury groups themselves.

We look at the following regions:

●	Europe
●	Americas
●	Asia Pacific
●	Rest of the world (includes the Middle East and Africa).

We also estimate national market sizes for the ten largest markets, which together account for around three-quarters of the global luxury market.

The report also includes findings from Mintel’s exclusive consumer research carried out across seven major markets: the UK, the US, France, Germany, Italy, Spain and China. This proprietary data provides valuable insights into attitudes and buying habits related to luxury goods in the major markets.

Company profiles
The report also includes profiles of leading luxury companies, spanning the categories that are the focus of this report: fashion and leather goods, fragrances and cosmetics, and watches and jewellery.

Financial definitions
All sales figures and luxury goods market sizes are quoted excluding VAT, unless specifically stated otherwise. All consumer spending data is quoted including VAT, unless specifically stated otherwise.

Operating profit is trading profit after normal operating costs and depreciation, but before interest, goodwill amortisation and exceptional items.

Pre-tax profit is calculated after all costs, including exceptionals, interest, and non-cash charges such as amortisation, but before tax.

Note that there can be a number of reasons why tables do not sum exactly:

●	Rounding of figures
●	Currency conversions if original data for different subsidiaries was in different currencies (companies sometimes provide information in local currencies)
●	VAT (sales tax) – if original data was provided gross (including sales tax), we have extracted VAT at the relevant rates for countries concerned and at the estimated appropriate rates depending on product categories sold.