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Luxury Brands After Economic Crisis in 2008-2020

Introduction

Luxury brands have been at the centre of interest for scholars and economists for a long time due to their specific and exceptional performance in times of economic hardships. In 2007-2011 the last severe and global financial crisis hit almost all areas of the world economy and trade. The COVID-19 pandemic seems to deteriorate the national economies, especially their GDP growth, and decrease the volumes of international trade and revenues. The economic crisis of 2007-2011 showed that the majority of retailers were adversely affected and their further recovery took significant efforts and time (Som & Blanckaert, 2015). However, the luxury companies tend to follow contrast scenario to the rest of the world, as they usually manage not only to mitigate crisis effects but also to continue their growth in terms of profit and expansion.

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The purpose of the research paper is to present and explore economic and managerial factors that may have influenced the development of luxury brands in times of crisis. Despite the long period of 2008-2020, the study will cover only two major economic downfalls: Global Economic Crisis of 2007-2008 and ongoing stock market crash caused by the novel coronavirus pandemic. The paper will also seek an explanation as to why giant retailers of luxury goods are capable of preserving stability in terms of growth and profit.

The current upheaval will play the role of the next tester of luxury brands being crisis-proof. Another aim of the study is to find out effective strategic initiatives that helped to contain 2007-2008 recession in order to forecast its utility for the aftermath of COVID-19. LVMH’s strategy, what is a luxury giant conglomerate, will be analysed to determine measures that were taken to mitigate adverse economic influence (Solca & Wing, 2009). This problem is of high importance to be addressed because final insights of the research paper will help to design clear and valid recommendations on how to recover following the upheaval.

The effects of the 2007-2008 crisis on the luxury industry have already been studied and analysed. Nevertheless, there is a lack of researches targeting the strategic responses of its leading players. According to Olorenshaw (2011), LVMH had strengthened its positions with the help of the Chinese market and expanded globally by purchasing of weaker brands during the financial crisis. That crisis caused an 8% overall decline in the industry, shifted major consumer behaviour and forced multi-brand companies to revise their strategies (Worrell, 2018). On its turn, coronavirus saw the French tycoon facing up to 20% of a revenue drop in the first quarter due to preventive lockdowns (Bhasin, 2020). The conglomerate’s brands currently support COVID-19 relief initiatives by manufacturing free equipment for doctors and donating money (Tan-Gillies, 2020). Those initiatives may help to preserve the brands’ status and customer loyalty, but the economic influence of the pandemic is not evident at the moment.

Luxury brands are capable of attaining stable performance levels and be resilient in times of crisis due to specific commodities, their global presence, appropriate strategy response and effective value creation. In order to confirm or negate this hypothesis, the systematic review of the most relevant publications will be conducted, and meta-analysis will be applied to compare findings. The work will start with the general characteristic of the industry and LVMH in particular. Then the effects of the crisis will be highlighted together with strategies applied to deal with them. Different articles that used both quantitative and qualitative research methods considering luxury fashion brands’ strategies in times of economic downturn will be compared to find out the most appropriate strategy.

Literature Review

One reason why luxury brands are able to sustain a crisis is that its products perform different tasks than daily commodities do. According to Langer (2020), markets of luxury products are less crisis-prone than non-luxury markets due to appropriate value creation, which becomes even more important during a crisis. According to him, some major brands managed to become stronger in 2008 because they prioritised the brand’s values, offered redefined product lines and provided personalised services.

The similar situation can be seen now when popular brands try to help combat the coronavirus outbreak (Tan-Gillies, 2020). The survey showed that 90% of respondents admit that fashion brands should be involved in protecting the community wellbeing in emergencies (Arnold, 2020). Moreover, this survey proves that luxury brands’ responses to COVID-19 pandemic will influence future purchasing decisions and consumer trust. Nevertheless, the study conducted by Kapferer and Michaut (2015) reveals that actual luxury customers are not considered about sustainability but still have high latent expectations of brands. This study claims that sustainability and corporate responsibility becomes an element of quality.

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During an economic downturn, every luxury brand will better off from maintaining their image. According to Hassan et al. (2015), customer segments of luxury markets have homogeneous needs and motivations, so the global dimension of some brands helps them to be highly resilient during economic hardships. The size of conglomerate LVMH, which controls such popular fashion brands as Bulgari, Givenchy and Louis Vuitton, and its global presence means that some loss of revenue in one region may be compensated by the surplus in other (Corominas & Armengol, 2013). According to Solca and Wing (2009), LVMH is the only luxury manufacturer that enjoys strength in two major categories (Wines & Spirits and Leather Goods) what is its main advantage in comparison to niche luxury brands.

Various sources claim that the luxury market shrank as well during the last recession but showed a better overall performance. According to Arnett (2020), high-end stores’ sales decreased by 25% in 2009, while heritage luxury brands, such as LVMH, had a flatlined revenue. The recession created an opportunity to target the Chinese market, which contributed to the fast recovery of the industry by substituting the European one. Currently, the situation is different with China being affected by the novel coronavirus and with the worldwide lockdown. For instance, Roggeveen and Sethuraman (2020), state that retailers will be forced to reconsider their inventory, supply chain and delivery systems. Consumers may accustom to online purchases and care more about their health safety. D’Arpizio et al. (2020) forecasted three scenarios for the luxury industry following the pandemic, and all of them predict the market decline between 15% and 35%. Nevertheless, the authors expect a speedy recovery of China (overall Asian market), while the US and Europe may feel repercussions for a longer period. It is possible that LVMH will repeat its strategy of more intensive China targeting.

Luxury companies are not immune to the downturns but usually perform better. Salakari (2013) found that luxury goods manufacturers outperformed premium brands, while their overall performance was positive during the crisis. The sales growth, financial flexibility and size of the company determines its operational performance. Worrell (2018) enlisted strategic management responses that were implemented during the Global Financial Crisis. The list includes re-allocation of capital, horizontal expansion and global expansion. LVMH activity was focused on costs reduction to free capabilities needed to maintain profit and promote growth. According to Olorenshaw (2011), LVMH broad portfolio and expansion to BRIC countries played a decisive role during the financial crisis. Similar strategies can be applied following the COVID-19 pandemic.

References

  1. Arnett, G. (2020) What happens to luxury during a recession? Vogue Business.
  2. Corominas, M. N., & Armengol, R. M. (2013). Qualitative and quantitative financial analysis of LVMH [PDF document]. Web.
  3. D’Arpizio, K., Levato F., Fenili S., Colacchio F., & Prete, F. (2020). Luxury after Covid-19: Changed for (the) good? Bain & Company. Web.
  4. Hassan, S., Husić-Mehmedović, M. & Duverger, P. (2015). Retaining the allure of luxury brands during an economic downturn: Can brand globalness influence consumer perception? Journal of Fashion Marketing and Management, 19(4), 416-429. Web.
  5. Kapferer, J. N., & Michaut, A. (2015). Luxury and sustainability: a common future? The match depends on how consumers define luxury. Luxury Research Journal, 1(1), 3-17. Web.
  6. Langer, D. (2020). How luxury brands can win during a crisis. Jing Daily.
  7. Olorenshaw, R. (2011). Luxury and the recent economic crisis. Vie sciences de l’entreprise, 2(188), 72-90. Web.
  8. Roggeveen, A. L., & Sethuraman, R. (2020). How the COVID pandemic may change the world of retailing. Journal of Retailing, 1-4. Web.
  9. Salakari, H. (2013). The effect of recession on the operational performance of luxury goods companies – Empirical evidence from the global luxury market between 2007 and 2010. [Unpublished master’s thesis]. Aalto University.
  10. Solca, L., & Wing, M. (2009). Black Book – LVMH: King of the luxury jungle. Bernstein Global Wealth Management.
  11. Som, A., & Blanckaert, C. (2015). The road to luxury: The evolution, markets, and strategies of luxury brand management. Wiley.
  12. Tan-Gillies, H. (2020). LVMH group steps up mobilisation of COVID-19 relief initiatives worldwide. The Moodie Davitt Report. Web.
  13. Worrell, J. H. (2018). Exploring luxury fashion brands’ strategic response to crisis: a multiple case study on surviving the Global Financial Crisis. [Master’s thesis, Colorado State University]. CSU Thesis and Dissertations.

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StudyCorgi. (2022, January 25). Luxury Brands After Economic Crisis in 2008-2020. Retrieved from https://studycorgi.com/luxury-brands-after-economic-crisis-in-2008-2020/

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StudyCorgi. (2022, January 25). Luxury Brands After Economic Crisis in 2008-2020. https://studycorgi.com/luxury-brands-after-economic-crisis-in-2008-2020/

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StudyCorgi. "Luxury Brands After Economic Crisis in 2008-2020." January 25, 2022. https://studycorgi.com/luxury-brands-after-economic-crisis-in-2008-2020/.

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StudyCorgi. 2022. "Luxury Brands After Economic Crisis in 2008-2020." January 25, 2022. https://studycorgi.com/luxury-brands-after-economic-crisis-in-2008-2020/.

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StudyCorgi. (2022) 'Luxury Brands After Economic Crisis in 2008-2020'. 25 January.

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