It’s been a turbulent few years for luxury consumer brands, with no one being able to predict what would happen during the Covid-19 pandemic. Those brands that already had a robust supply chain and strong e-commerce focus would of course flourish when their customers were confined to their homes with the modern luxury of high-speed broadband and nowhere else to spend their money.
Now as a potential recession looms, consumer inflation is over 10% and rising, and a new Prime Minister has just been appointed, luxury brands need to come up with a flexible plan to keep costs down but visibility and brand awareness high.
Traditionally, households with more disposable income have been more resilient to recession, as they have more resources to absorb additional costs of inflation.
So far, our luxury retail clients have been impacted less than other verticals – with strong continued numbers and growth in key global markets, especially the Middle East and Asia. China, in particular, is still seeing strong online sales as consumers have been restricted indoors with further lockdowns.
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Within Europe, Germany has been a market with some hits to revenue growth but only marginal so far.
March 2022 was the first month that some of our clients have ever been down YoY for ecommerce, but this was largely due to the lockdown the previous year and the increased online spend opportunity.
Of course, this presents challenges for brands that have forecasted for and budgeted for significant growth, based on the last two years’ profit, and are now looking at economic uncertainty.
Many businesses have invested heavily in their ecommerce channel, team and operations after strong growth since Q2 2022, but this now represents a period of uncertainty with this slight shift and also reports of change in consumer spending behaviour.
We can look to the 2008 recession to look at patterns but of course we are living in a different world with different circumstances – and different technology.
What should luxury brands do to cope with a potential recession?
Deep review of processes
Now is a good time to look at investing the marketing and tech budget for the long-term benefit. Audit the key areas of expense and potential wastage, and evaluate and critique all the third-party web functionalities that cost the business money. Are there more cost-effective alternatives out there or perhaps even better offerings have come onto the market?
The overall goal is to build out a lean tech stack and improve the overall customer experience. Brands can also look at re-platforming their website for efficiency. Look at how your teams can become as agile as possible in terms of making changes and testing them quickly. If a brand still has legacy IT systems, now is the time to move forwards with digital transformation.
Expand VIP programmes
Luxury brands are especially good at making their customers feel special – this is all part of the high-quality experience. One of the unique offerings of a luxury brand is the VIP programme for existing customers and brand ambassadors.
VIP programmes can be developed and expanded during tough economic times in order to keep in touch with loyal customers. It’s always easier to gain repeat custom rather than recruit new customers from scratch.
Although consumers will start to focus more on price when making their purchasing decisions, don’t underestimate the pulling power of values such as sustainability and ethics in decision making. However, don’t make the mistake of greenwashing to cut costs. Authenticity always wins.
Maintain a data-driven approach to your decision-making
Marketing departments should ensure they are using all the resources available to them when forward planning for better decision making.
Look at how GDP growth, inflation rates and consumer confidence all correlate with your performance? There is plenty of data out there from specific industry reports to the freely available ONS figures. Based on official projections of these economic indicators, how does this impact your forecast figures?
Brands should also continue to invest in data capture to gain a greater understanding of their market, their audience and their product range. In-depth reporting can help you react quickly and make tweaks depending on consumer behaviour.
So in conclusion, the advice is don’t panic or make reactionary decisions. It’s hard to plan for a recession as no-one has a crystal ball. The result of Covid, even without a potential recession, has meant that in many industries online purchases have fallen significantly this year, compared with the lockdown situation.
Luxury brands work hard on their brand experience and are often the first to bounce back from any economic downturn.
All of the above advice is good ecommerce practice that a brand can undertake at any time to ensure optimal performance.
