The COVID-19 crisis and its economic ripple effect has brought down economies at their worst possible state; left millions jobless and homeless; made the poorest rely on the government for basic needs; and suspended salaries of the workforce. While the hue and cry for essential goods and services; and the reopening of small scale industries have been dominant amidst the pandemic across the globe, the future of luxury brands’ sales prima facie seems grim and unrecoverable after the upliftment of the lockdown.
Luxury goods are predominantly expressed as goods with rigid demand. Expenditure on them during times of economic crisis is referred to as irrational by prudent consumers. A study conducted by the Boston Consulting Group reveals that the global sales of luxury goods may fall down by 30 to 40 billion euros owing to the pandemic. While, on the other hand, the luxury brand, Hermes recorded a sale of 2.7 million dollars on its reopening date after the relaxation of the lockdown in China, and it is said to be the single largest sales total for any luxury boutique in China ever. Long queues, fuelled by revenge spending sprees, have been seen outside outlets of brands such as Apple, Nike, Gucci, Estée Lauder and Lancôme, among others, in Chinese cities.
What is Retaliatory Consumption?
This absurd behavioral pattern is often referred to as retaliatory consumption or revenge spending. It is an overindulgence in retail therapy by wealthy consumers who have missed shopping at their favorite outlets due to the lockdown. It is denoted as an ‘escapism’ from the realities of socio-economic hardship, to buy so-called ‘non-essential’ and/or luxury goods.
Lesson from History
The phrase dates back to 1970s when there was a surge in spending after China’s economy opened up. It was a reaction to years of abject poverty and economic paralysis. Retaliatory consumption is again surfacing in the context of Corona Virus, specifically referring to post quarantine shopping sprees. After the Great Depression, the USA felt a similar surge in audiences in cinema halls, amounting to 60 to 80 million a week.
Where does India Stand?
While India is currently facing panic consumption of necessities and irrational consumption of sin goods such as alcohol, the saving mentality of Indians illustrates a low probability of a similar phenomenon of retaliatory consumption in the country. Nitin Jain, Managing Director Alvarez & Marsal (India), states “India and China consumers are not an apples-to-apples comparison.”
While the loss in sales and demand during the lock-down is inevitable and right now it is difficult to say whether the market would face a ‘dip and stabilization’ recovery or a ‘rapid’ recovery in the near future; revenge spending seems like a flicker of hope for luxury brands. History is a testament that each socio-economic crisis leaves a long term impact on the society and economy, and this pandemic is no exception to the rule. The great depression impelled a “waste not want not” attitude that dictated consumption patterns for years across the globe. Likewise, the outbreak of COVID-19 may shift luxury consumers to assess things from a changed outlook. The future of luxury brands depends on whether the world would move towards conscious savings or will irrational consumption be the new vogue.
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