A new report published this week by retail analysts Verdict Research has found that the global downturn has brought about a major reversal in the fortunes of the luxury retail sector, shattered some cherished myths and radically changed the rules of the game.
 
Verdict predicts that a significantly different luxury retail sector will emerge at the end of this crisis as the global downturn has fundamentally changed the consumer attitudes of the mass market.
 
Generally speaking, an era of consumer frugality has set in and has left its mark on the luxury sector and the widening of the consumer target group to the mass market has halted.
 
“The change in external circumstances has once again demonstrated the cyclical nature of the luxury business. Contrary to what has often been claimed luxury by any means is certainly not immune to crises,” said Daniel Lucht, senior analyst and author of the report.
 
Verdict Research forecasts a six per cent decline in global luxury expenditure in 2009, predicting that the global industry is headed for one of the worst years on record. In particular Japan (-14.6 per cent) and the US (-12.1 per cent) will see sharp declines in sales growth. For revenue, cash flow and profit generation and protection it is vital that the domestic houses of the luxury dynasties are in order.
 
“As the department store sector in many markets shows signs of implosion, we would advise luxury retailers to go fishing where the fish are. The new opportunity lies in shopping centres,” adds Lucht.
 
The internet will be a major sales driver going forward, it will enable broader reach, help with advertising and bring costs down, as it can reduce the number of new store openings.
 
While luxury brands have traditionally been slow to introduce e-commerce, as many identified it with counterfeiting or argued that the internet as a channel to market would take away from the shopping experience, the changed reality on the ground now forces retailers to innovate.
 
“The economic downturn has put pressure on all luxury retailers to go online,” said Simon Chinn, co-author of the report.
 
“While slow to take up this channel, luxury brands are now utilising it beyond the usual information only site and offering products to buy online, with positive results. The internet is particularly appropriate for products such as accessories, watches and jewelry, where fit is not as much of an issue and an online luxury retail platform could offer special personalised services such as individual designs and engravings.”