Making a face mask a Veblen good: Challenges luxury fashion industries face during the pandemic
Updated: Aug 30, 2020
The luxury fashion industry is generally considered to be more resistant to economic crises in comparison to other sectors, yet it is still significantly influenced by such downturns. During the recession of 2009 the global luxury goods market decreased by approximately 10% . However, the turbulences the industry experiences during the current coronavirus pandemic seem to be not purely financial. Initially, following the drop in consumer confidence as the virus spread, there was a rapid fall in luxury spending . It quickly started to rise again, but did not yet reach pre-pandemic levels. Nevertheless, this trend suggests that many consumers of luxuries have the means to continue with consumption – most likely because they are more affluent, thus more financially resistant to crises. It is the decreased consumer confidence and protective government regulations, driven by COVID-19 developments, that hinder luxury expenditure and harm sales of luxury fashion houses. The solution seems to lie on their side. They have to adjust their go-to-market strategies to enable continuous consumption in line with the health protection regulations. Consequently, the luxury fashion industry will change more profoundly as it faces more complicated problems than during any other economic downturn so far.
How did a face mask become a Veblen good?
The best example, upon which it can be explained how the pandemic has shaken the luxury fashion industry upside down, is the example of a face mask.
Luxury fashion brands quickly remodelled the production to support fighting the global health crisis. Even the biggest luxury retail groups, such as LVMH, switched their production from “regular” clothes, shoes, and accessories to health security appliances which included face masks. These products were donated to the COVID-19 frontline – mostly hospitals. It had positively affected the public image of fashion brands, since they were perceived as supportive to local health services, but it did not increase their sales.
As the coronavirus spread, European and North American states made it obligatory for everyone to wear a face mask in public places. Many nonexclusive fashion retailers decided to offer their customers this particular product to cover increased demand as well as boost their sales. However, the established luxury brands could not just start to sell health security appliances, because the high status of a fashion house is defined by unique design followed by a high price while a face mask is a simple, thus relatively cheap product. It had to have the “luxurious dimension” first.
Then, fashion brands took an ordinary face mask, combined it with creative prints, embroidered the name of a couture house, and an exceptionally high price. And people literally bought it! The mask quickly became synonymous with superior socio-material status of the owner. It encouraged the luxury fashion producers to increase the price – Louis Vuitton has set it at 1800$ in June. The demand did not decrease; on the contrary, such face masks became even more desirable. Having this economic characteristic classifies a face mask of this kind as one of the Veblen goods, the group of which consists of very luxurious and exclusive products which do not follow the law of demand – like yachts, jewellery, or wines.
What other challenges has the luxury fashion industry faced?
The example above shows that luxury fashion sector can extraordinarily use such basic socio-economic trends as increased demand for face masks for its own benefit. However, coronavirus has posed more serious challenges to the industry – some of them have been tackled, some partly addressed, and some are still a relevant issue.
1. Importance of multi-channel sales.
Before the pandemic, luxury boutiques in Europe and North America sold mostly to tourists from China, Russia, and the Middle East – whose in-store spending gradually withdrew as closure of borders and national lockdowns started. The Chinese, whose expenditure used to account for 35% of the global luxury goods market , were the first ones to stop travel, thus halt their spending on luxuries abroad. They were partially “balanced out” by the customers from Russia and the Middle East . However, as the coronavirus spread globally and social isolation became a regular health protection measure, sales to tourists vanished for several months.
In addition to that, closure of stores was made obligatory in many countries. It fully eliminated in-store shopping as one of the most important channels of sales – as one could have either buy or order a product in a luxury fashion store. Consumers wanted to smoothly switch to online purchases – it posed difficulties to the luxury brands, because their retail strategies relied on in-store experience. Some fashion houses did not even have their website suitable for shopping, such as Ferragamo group, while many others offered only a limited range of products online. Digitalisation of the sales channels, meaning making purchases available on websites and orders via email, was a good move. Many established fashion houses noticed that their online sales rose by as much as 40% in the late first quarter of 2020 and these values strongly accelerated in the second quarter as the lockdowns continued . It proves the rise of importance of e-commerce in retail strategies of luxury fashion brands.
2. Full digitalization of marketing.
As the COVID-19 spread and social isolation became obligatory almost in every country, some marketing channels, like in-store experience or public events, became irrelevant. Reduced range of omni-channel retail strategies forced fashion brands to enhance the digital way of promotion. It largely focused on establishing a remote relationship with the consumer, through social media or newsletters – not necessarily on bold advertising of the brand nor the products. Such personalised digital marketing improves shopping experience and image of the fashion house. It is speculated that better consumer-brand relationship can even encourage consumers to visit the brand’s store after post-pandemic reopening .
Similarly, there are attempts to compensate for the lack of key, marketing events. Following cancellation of Paris Fashion Week, luxury brands realised the difficulty in promoting their new clothing collections and exclusive runway products. This is why some later events have been delivered digitally – starting with London Fashion Week in June. Since literally everyone watches Fashion Week shows from home, some part of the luxurious dimension and exclusivity of the event has vanished. Nevertheless, it enables the fashion houses to, at least partially, preserve “public” events as a marketing channel, thus promote new collections.
3.Sustainability of spread-out manufacturing.
The production had at least temporarily halted as the COVID-19 spread globally. For example, in Italy, where over 40% of global luxury-goods production happens, every big-brand factory as well as small, family-based façonnier has shut down during the pandemic . In short-run, it prevented efficient production, thus sales and further shipping of luxury manufactured goods. In long-run, it can lead to permanent closure of financially struggling independent, luxurious manufactories; and, possibly, of the unprofitable local production sites. Firstly, it would destroy the signature Italian craftsmanship – a significant element of the luxury fashion ecosystem. It threatens existence of the luxurious producers specialising in hand-made goods, like Angelo Inglese in hand-crafted shirts. Similarly, closure of unprofitable local production sites, both in Italy and abroad, owned by the big fashion houses would withdraw many luxurious manufactured goods from the market. High status of such houses relies on availability of locally crafted products – for example, from Hermes’ French manufactories or Burberry’s small factories in England and Scotland. Such bigger brands have to decide whether to close local production sites and focus on mass production, or to continue investing in economic survival of these manufactories through the pandemic. It is a decision assessing the profitability versus the luxurious status of the fashion house.
Considering these three main challenges, it can be concluded that the luxury fashion industry has to adapt to the current crisis in different ways than before. While a face mask has been turned into a Veblen-type source of revenue almost effortlessly, there are still more serious problems, too challenging to be solved that easily. Therefore, we can expect even more changes to be introduced by individual brands to overcome such challenges and to assure smooth economic recovery of the whole luxury fashion industry.
By Wiktoria Jędrzejewska - Incoming BSc Economics Student at King's College London
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