The exclusivity and high prices of luxury brands involve risks for retailers in 2020.

No luxury brand is immune from the retail upheavals of a post-COVID world. The risks might not be exactly the same as those facing mainstream retailers, but they’re potentially just as dangerous.

It’s great to be a vendor of pricey, high-end goods that usually self-insulate from the ups and downs of normal retail markets. Their quality and cost limit their appeal to targets for whom money and access are usually not issues.

Even the pride – and sometimes arrogance – luxury brands often display publicly in their product promotions are strangely attractive to target consumers.

But you know what comes after pride? A fall…

Luxury at Risk: Inventories, International Client Uncertainty, and Questions of Conscience

We’re living at a moment in time at which money and access are issues for everyone, including luxury retail brands and their clients.

We’ve had ample demonstration that no socioeconomic bracket, no market segment, is immune to the pandemic’s devastating ongoing impact. Luxury brands, usually reliant on long-term economic patterns, now face particular dangers that threaten their revenues and reputations.

These dangers include serious inventory issues, international uncertainty among traditionally solid high-end retail client markets, and problems with perception, the public conscience and sustainability.

Inventory Issues: An Embarrassment of (Discretionary) Riches

Not every consumer who might like to own luxury brand products can afford them, and that’s part of their allure. From a brand’s perspective, the idea that you can make a product and sell it for ten or more times your cost is also appealing – so much so that that many high-end brands prefer to keep producing stock even when demand is falling.

The result is that luxury brands have now found themselves with far more inventory than they can move easily. They’re reluctantly considering conventional discounting, but they’re also getting creative – more creative than simply burning excess stock, as that’s creating ugly feedback from consumers and causing governments to intervene.

Many brands see luxury retail discounting as the worst sort of slippery slope, and they’re not wrong. The psychology of luxury branding depends on consistency in quality, price, and related prestige. Discounting opens the door to negativity luxury purchasers won’t tolerate for long.

After all, when you reduce your prices, you attract new purchasers who habitually want “more for less.” You start alienating wealthy shoppers who value the exclusivity and aura of quality that consistently high prices create, and you anger more than a few who may feel cheated because they’ve been loyal without any expectation of discounted pricing.

Luxury brands are trying other solutions, to be sure. But in the short and medium term, the problem of excess luxury inventory isn’t going away. Off-price sales, having grown consistently in recent years, may help, but there are still too many uncertainties.

Those who opt for classic retail discounting to resolve the inventory problems won’t find a real solution.

International Client Uncertainty: Now You See Them, Now You Don’t

Not surprisingly, identifiable groups of luxury shoppers are no longer showing up to buy in areas they previously frequented.

For instance, wealthy Arab shoppers who were frequent luxury brand purchasers in Europe have been staying away because of international political and economic turmoil. That turmoil, fueled by the pandemic, has also impacted domestic luxury markets in the Middle East.

There’s also been trouble with China’s luxury market. While there have been sluggish signs of positive activity recently, it’s also true that the pandemic drove Chinese shoppers to pull back drastically. Now that there are signs of virus spikes and recurrences, the return of luxury buyers in the Chinese market is no longer a sure thing in the short/medium term.

These shoppers have been absent for reasons that have little or nothing to do with normal luxury brand pricing, and desperation discounting won’t attract them back because it doesn’t address the underlying issues. It would be a wasted (and destructive) effort with insufficient return and no chance of being a long-term fix.

Luxury brand health – even survival – will depend on some experimentation and innovative thinking.

The Mighty May Fall: Perception, the Public Conscience, and Sustainability

Industry pundits continue to speculate that luxury brands will finally have to resort to serious discounting to stay afloat.

Clearly, sustained discounting isn’t a solution many brands would willingly embrace. They know it would ultimately mean the destruction of brand credibility.

Instead, luxury brands are finally recognizing that the mighty may indeed fall if they’re not proactive in finding realistic long-term solutions that address both “hard” economic factors and luxury clients’ changing sensibilities.

Those changing sensibilities include a deep interest in brand transparency, and a desire to see honesty and fairness as essential attributes of their favourite brands. They’re also interested in sustainability, not only in emergent situations like the pandemic, but more generally, in terms of ecological sensitivity and ethical awareness.

The danger lies in failure to adapt to these changing sensibilities. Luxury discounting isn’t a solution.

The Renewal of Luxury Retail: Choosing New Directions

Proactive luxury brands are considering several key components of a forward-looking strategy, including ways to acknowledge the buying public’s altered sense of conscience.

There’s a growing recognition of the need for more personal, “connected” relationships with luxury brand shoppers, with greater virtual engagement. Luxury brands must recast themselves as participants in the immersive world of “the new retail.”

According to Bain & Company, the luxury market may diminish by as much as 35% over 2020. The regional and global market segments on which personal luxury brands have relied are still uncertain, and are likely to remain so into 2021.

Brands that don’t address these dangers won’t fare well in the emerging post-COVID retail reality.

Let Purple Dot Help You Avoid Desperation Discounting

Purple Dot’s smart discounting provides a means for luxury brands to offer online shoppers an alternative price without turning to conventional discounting or the language associated with it. It allows for coherent inventory and price control, with no down-market stigma.

By using Purple Dot’s solution to avoid desperation discounting, luxury retailers can create a self-renewing pricing “experience” for their valued shoppers.

Learn more through our website. You can talk with us by email, phone, or live chat. We can help.