Europe’s luxury goods capitals reopen to new reality

Fashion brands will now have to cater more to their local clientele, rather than international customers

Pandemic forces upmarket brands to rethink pricing, store locations and supply chains Fashion brands will now have to cater more to their local clientele, rather than international customers.

With sales clerks wearing face masks and ubiquitous bottles of hand sanitisers around, the effect of the coronavirus pandemic is impossible to miss at Paris department store Le Bon Marché.

But perhaps the most striking evidence is in a top floor lounge where customers from outside the EU process their sales tax refunds. Before the pandemic, the world’s oldest department store, owned by luxury group LVMH, would have 12 counters open for tourists to reclaim taxes. Last week, the lone clerk on duty said she had handled just three refunds that day.

As the fashion capitals of Paris, Rome and Milan stir back to life, the luxury industry faces a stark reality: Chinese tourists, who accounted for two-thirds of the sector’s sales in Europe before Covid-19, are absent and unlikely to return any time soon. 

Now brands such as Chanel, Gucci and Louis Vuitton will have to cater more to their local clientele while also seeking to understand just how deeply the public health emergency has altered customers’ desires and shopping preferences.

Remo Ruffini, chairman and chief executive of Italian luxury brand Moncler, expects the demand shock will spark changes in everything from design to sales tactics. “Normality at the moment remains on the distant horizon,” he told the Financial Times. “When business as usual is not possible, it is the perfect time to reframe a new normal.”

For Moncler, best known for its high-end quilted jackets, it was, he said, “the time to boost digital, to redesign the retail network, to establish a closer and more supportive relationship with the supply chain, to invent new ways to present and sell the collections, and to reconsider how to engage with clients”.

But Mr Ruffini warned that some aspects of the business cannot be changed: “The fashion industry is very physical, we need designers, tailors, fittings, fabrics, not everything can be managed remotely.” To encourage staff back to the office in Milan, Moncler is offering them bicycles, free doctor consultations and Covid-19 antibody tests.

As workers return, an immediate priority will be selling stock, especially of clothing in department stores. Luca Solca, analyst at Bernstein, has predicted “the mother of all end-of-season sales”. At Le Bon Marché, jackets from Isabel Marant and Tod’s loafers were already marked down by 40 per cent. 

“Consumers are expecting discounts as a new rule of the game,” said Claudia D’Arpizio, luxury analyst at Bain & Co.

Brands that have their own stores, however, will limit such discounting and use less visible outlet stores to sell down inventory. Some, such as Chanel and Louis Vuitton, have even raised some prices by 5 per cent to 17 per cent to offset higher costs and protect margins. 

There are signs that shutdowns have turbocharged online sales of luxury goods, despite misgivings about how to replicate the high-end experience virtually. A survey of 1,000 luxury customers in the US and Europe found that 24 per cent had shopped online for the first time while stores were closed, and 76 per cent said the experience was positive, according to a study by McKinsey for the National Chamber of Italian Fashion and Pitti Immagine, a trade event organiser.

Read the full article here – ft.com