Innovation pathways for LUXURY BRANDS - EVOLUTION OR REINVENTION?

Since its inception, the luxury industry has been a growth story. Product extensions, store network expansion, entering growth markets – especially China and digital commerce – have been the drivers of the last years. Business cycles? There were some downturns during the SARS epidemic and the financial market crisis in 2009. Soon after, growth resumed at an even accelerated rate, driven by many more consumers craving luxury goods. Few thought that the diversification in terms of products, geographies, sectors, and consumers could be affected by economic downturns. All that is needed is a constant growth of the luxury clientele and their disposable incomes for marketers to turn them into customers of the brand.

The illusion of control

Stores had to be closed, supply chains were severely affected, travel was restricted, and consumers shifted demand to necessities.

The belief that consumers can be “created” systematically and through planned management decisions has been the guiding narrative for luxury brand managers over the last decades (Som 2020). Flawless execution and managerial excellence were what mattered. However, in an environment where things are out of control and substantially affecting the business model, the perfection of codified standards might reach its limits. COVID-19 has challenged these assumptions. Is this going to change the luxury industry as we know it? It has at least challenged our illusion of control. No one was prepared for the outbreak of a global and devastating pandemic. Before the crisis, luxury stocks were trading near all-time highs of about 26 times forward price-to-earnings. Stock prices of the large luxury firms have plummeted, depending on the sector, by 30% or more from the beginning of the year to the outset of the pandemic. Stores had to be closed, supply chains were severely affected, travel was restricted, and consumers shifted demand to necessities. While the effect over one