Brian Duffy says he knew it would be a good day even before Watches of Switzerland Group Plc opened the doors to its flagship store on London’s Regent Street for the first time since March.
The shop had arranged for a stream of customers to come pick up Rolex watches they had ordered, said Duffy, chief executive officer of the U.K.’s biggest seller of luxury timepieces. And then the phone began ringing. “We were inundated with people calling and asking us ‘are you open?’” he told Bloomberg.
London’s reopening this week gave a fillip to purveyors of luxury goods, from Harrods, the iconic department store, to the tailors on Savile Row. But difficult questions remain over how long the demand will last, and how a global industry promising personalized services will adapt to a pandemic that’s changing the way people interact and travel, possibly forever.
“There is no going back,” said Anita Balchandani, the U.K. head of apparel, fashion and luxury at McKinsey & Co. Nearly all luxury companies “expect the rules of the game to profoundly change” because of Covid-19, she said.
China Question
One crucial variable is China, whose consumers accounted for just over a third of all luxury spending last year. Firms from Gucci-owner Kering SA to LVMH SA, which has the Louis Vuitton and Dior brands, reported a rebound in sales on the mainland in April, after lockdowns ended. Yet a weakened economy could damage consumer confidence, and the decision this week to close Beijing’s schools and cancel flights to quell a fresh outbreak of Covid-19 reveals how fragile any recovery might be.
The cratering in intercontinental air travel also means far fewer big-spending consumers from China and elsewhere will be jetting to European tourist destinations, at least until a vaccine or cure is found. As a result, “fashion centers like London, Paris and Milan will suffer disproportionately,” predicted Paul Martin, the U.K. head of retail at KPMG.
Watchmakers have joined their luxury peers in betting that Chinese consumers will spend more on their home turf as a result of the coronavirus. A worsening decline in watch shipments to that market last month may mean a recovery takes longer than anticipated. Total Swiss watch exports extended their slump in May, dropping 68%, industry figures showed Thursday.
Global sales of personal luxury goods reached a record high of 281 billion euros ($315 billion) last year, according to Bain & Co. Now, after months of restrictions that shuttered shops and factories, the consulting firm estimates sales could fall as much as 35% this year.
Johann Rupert, chairman of luxury giant Cie. Financiere Richemont SA, owner of the Cartier brand, warned last month that the “grave economic consequences” of the pandemic could last three years. Swiss watchmakers, in particular, are facing the worst year in the modern history of the industry.
A “behavioral shift” to online shopping will accelerate as people remain reluctant to visit stores, predicts Jose Neves, founder and CEO of Farfetch Ltd., which sells a range of luxury brands over the internet. Online purchases accounted for about 12% of global luxury sales in 2019, and could more than double to 30% by 2025, according to Bain.