By Sachini Dilanka – Senior Consultant, Global Luxury at Attraqt
A couple of months into the lockdown, a lot of us wonder if people are still lusting after their dream items, are they still enticed and captured by their favourite brands? Most of the answer lies in the psychology of the consumer and their surroundings.
Understanding your customers, having that in-depth knowledge on the full spectrum of their purchasing power helps every business. The luxury sector is no different. The lockdown climate saw a lot of luxury brands shutting their stores across many continents and with that closed the avenue of all physical sales. The news reports on a daily basis remind us of the economic downturn that we are bound to be faced with. So, in the midst of all these, what is the luxury sector customer doing? Do the empty streets in Rue du Faubourg Saint-Honoré or New Bond Street mean the customers have taken a break from shopping their dreams? Or the predictively challenging times ahead have made them peddle slower or even push breaks on their spending sprees?
To find out the answers, we need to understand the specific market and the customer in the luxury world. The luxury consumer is very different from the average mainstream shopper in a multitude of ways and they are at different levels on the social, economical and cultural stage.
The entry-level is the customer who would buy a designer lipstick for her birthday. For this customer, it is a rare treat and he/she accesses the luxury price range at the entry-level price mark.
The second segment of customers are those who can afford the entry-level products a brand has to offer on a more regular basis. These products are part of their routine, however, the more expensive ready to wear and luxury accessories are still out of their range except for the rarer occasions when they buy something as an investment piece.
The third segment of customers are those who can afford the main/key products the brand identifies with such as a classic Chanel handbag or a pair of Christian Louboutin heels on a more regular basis. They occasionally access even more expensive categories such as rare Jewells and ready-to-wear.
The last segment of luxury customers is classic collectors. They buy art, price on application diamond jewels or custom-made haute couture dresses. They buy for the pleasure of simply adding or collecting a unique piece from a limited collection. These high net worth individuals don’t look at variables like cost per wear or even the actual utilisation of the item, for them the luxury is in the fact that they could own a one of a kind piece.
Customers at each of these stages help a luxury brand grow. It is their cumulative engagement and contribution at different points that keep all the facets of business alive. However, for the most part, the consumers who pour a significant portion of cash on a regular basis into a luxury business, helping the cash flow of those businesses, sit at the latter stages of that spectrum. They belong to a different economical ring and the perception of money, affordability, expectations and materialistic wealth has different definitions and boundaries. The consumer who can afford to pay a four or five-figure amount for a handbag every now and then doesn’t live from paycheck to paycheck. They rely on long term investments, assets which are highly liquid or significant amount of inherited wealth, making their finances much less fragile to a temporary economic downturn the pandemic has currently caused. Also given the place they hold in the workforce, they are less likely to have been furloughed and job security is less of worry.
This is also the customer who is used to fulfilling their wishes as financial means hardly comes as a barrier to consumption. Of course, they might desire different items as the lifestyle changes apply to everyone. So instead of a pair of heels, it would be a cashmere loungewear set but as long as there is one stream of purchasing open to them, with that comes the continued buying power they possess, the purchases carry on. A perfect example is Hermes reporting $2.7 million in a day at a flagship store in China  or LVMH’s chief financial officer Jean-Jacques Guiony indicating, for the main brands of the group, namely Louis Vuitton, Dior, and Sephora, “recovery was rapid, with growth rates of 50% as of April 15.” 
Then the question is what luxury brands can do to utilise this purchasing power? How do you sell a piece of extravagance in the time of a pandemic? How do you keep the loyal consumer base a constant during these challenging times? Coming up: Luxury in lockdown: Facing the pandemic if you are a luxury brand.