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COVID-19: A Storm For India's Luxury Business

If country-wide shopping mall shutdowns are the norm, there is a possibility that luxury brands that have online channels will see an uptick at least in those channels

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COVID-19 is wreaking havoc in the global economy. Stock markets are down, factories offices and shopping malls remain shut, the overall economic outlook appears bleak for the first half of 2020, let alone for the luxury business. This impact on India's luxury business is not an isolated event due to COVID-19, but a Perfect Storm that has been in the making.

Dark clouds: In 2019, India's GDP growth rates dropped quarter-after-quarter, S&P wrote down its growth forecast for the (Indian) economy first to 5.7 and then to 5.2. Unemployment rates were steadily rising, and the Consumer Confidence Index was at a six-year low of 89.4 points. Automobile sales were plummeting, while luxury automobile sales remained flat compared to 2018 numbers.

While there appeared to be the proverbial 'calm before the storm' with Luxury retailers, and Jewellers recording high sales in Q3 (Oct-Dec 2019), there was a broad sentiment of a dull 2020 going into the new year.

Eye of the storm: It is essential to understand that China plays a huge role in the world's luxury business today. On the demand side, affluent consumers in Hong Kong and China form the No. 1 (if not in the Top 3) markets for many luxury brands from Europe and the rest of the world. On the supply side, Chinese manufacturing is a critical cog in the supply chain for luxury brands worldwide.

Brands worldwide entered 2020 with dampened spirits due to the escalating civil unrest in Hong Kong leading up to the Chinese New Year (CNY) holidays in mid-January. And right before China and Hong Kong were gearing to return to work after the CNY Holidays, COVID-19 hit hard.

Early signs of an impact on the luxury industry were visible since the breakout in Central China in late-January. Take the wristwatch industry for example - two large annual fairs in Switzerland scheduled for March remain canceled, landing a massive blow to an already stressed twenty-something billion swiss francs industry.

The supply chain impact of China's factories closing for over a month, and still slow to return to full production capacity was felt across industries - be it wristwatches, automotive, or fashion. Luxury retailers in India were bracing themselves for supply delays, canceled trade-fairs, and potential change in seasonal launches.

As if the macroeconomic conditions weren't complicated enough, two weeks ago the Indian financial system woke-up to RBI's takeover of Yes Bank. The (now lifted) 30-day moratorium put brakes on banking operations of the fourth largest bank in the country. With Sensex, Nifty, and Gold on a downhill, Indian Rupee slipping against the dollar to an all-time low of 75.00, and 191 confirmed COVID-19 infections in India (at the time of this writing), the hope for a stellar year for India's luxury businesses is all but wishful thinking. The eye of this perfect storm is right above us.

Silver lining? Apple stores in China - all 42 of them - are now open and fully functional. Luxury retail businesses are bouncing back, and shoppers are back in the malls. All luxury brands, including Salvatore Ferragamo, are hoping that they'll have a good April quarter as a result of pent-up demand. Chinese shoppers appear to be splurging on luxury goods with cash that they otherwise saved up during the almost 60-day restraint of locking themselves up in their homes and following social distancing.

The Indian consumer across all levels is experiencing fear, uncertainty, and doubt. It is tough to predict which way the dice will roll. Common sense would dictate that consumers will postpone all non-essential spending to a later time. With all the commercial shut-down and work-from-home options, common sense will also dictate that:

1. Entertainment content consumption will increase.
2. Gaming apps usage will increase.
3. For as long as they're practically able to, food-delivery, and grocery delivery services will see their best quarters of performance.

Consumer journeys for luxury purchases have changed drastically over the past couple of years. Consumers switch between, and learn about the brands, online and offline much faster than brands can keep up. If country-wide shopping mall shutdowns are the norm, there is a possibility that luxury brands that have online channels will see an uptick at least in those
channels.

But if we're all practicing some restraint, and tackle COVID-19 in the summer months, the start of school-season in June, and perhaps the extra-cash from all those holidays not taken will bring some much-needed respite to India's Luxury Business in 2020.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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luxury market coronavirus outbreak COVID-19

Nirupesh Joshi

The author is Founder and Creative Director of Bangalore Watch Company

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