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The luxury sector is going to be hard hit for years: Former LVMH exec

Meghan Fitzgerald
·Producer

The coronavirus is putting pressure on luxury retail as up-scale companies grapple with the fallout from closings of physical stores. But former LVMH (LVMHUY) chairman of North America, Pauline Brown, says the pandemic is only perpetuating issues the industry was already facing.

“It isn't just COVID that's hitting luxury right now,” Brown tells Yahoo Finance’s The Ticker. “Remember that pre-COVID, the luxury sector was at a high watermark, and I would argue that it was overvalued relative to its long term potential.”

Last year, 57% of premium fashion executives polled for a joint report by The Business of Fashion and McKinsey & Company said they expected 2020 economic conditions to get worse. That paired with U.S. retailers announcing more than 9,000 store closures last year overall, paints a bleak picture for brick-and-mortar. 

While luxury brands are seeing strong e-commerce presence, the coronavirus is still taking a heavy toll. Prada, for example, reported online sales growth of 150% in the first half of 2020 versus the same time last year, but total sales fell 40% overall. 

Brown notes the decrease in overall sales is greatly influenced by the lack of global tourism. 

“[It’s] the biggest issue which doesn't get talked about enough as a huge portion of luxury, especially in the U.S. and in Europe,” Brown explains. “The tourism industry has decimated [it]. The Tiffany flagship on 57th Street alone accounted for 10% of their total global sales, and you know that store is closed.”

Tiffany (TIF) last reported a 29% drop in worldwide sales for its fiscal second quarter ending July 31.

NEW YORK, NEW YORK - APRIL 23: Tiffany & Co.'s flagship store is closed during the COVID-19 pandemic on April 23, 2020 in New York City. COVID-19 has spread to most countries around the world, claiming over 190,000 lives with over 2.7 million cases confirmed. (Photo by Ben Gabbe/Getty Images)
NEW YORK, NEW YORK - APRIL 23: Tiffany & Co.'s flagship store is closed during the COVID-19 pandemic on April 23, 2020 in New York City. COVID-19 has spread to most countries around the world, claiming over 190,000 lives with over 2.7 million cases confirmed. (Photo by Ben Gabbe/Getty Images)

“There's a big portion of Tiffany buyers that are not super wealthy,” Brown says “They're aspirational buyers. You also have a big portion of Tiffany buyers that are shopping for wedding rings. I don't know when we're going to be back to going to weddings the way that we were just a year ago.”

At the start of 2020, digital sales accounted for only 12% of luxury all sales, according to Bain & Company. The management consultancy firm predicts that share could reach as much as 30% by 2025.

But Brown says most consumers want to try out luxury goods in person instead of buying online, and the pandemic is hindering that experience.

“The vast majority of luxury shoppers are not going to be making a decision based on a two-dimensional pixelated image, especially when you're talking about products that run for thousands of dollars,” she notes. “Certain segments of luxury are going to max out very quickly, fashion being the quickest to show its limitations online. Jewelry is not far behind.”

Meghan Fitzgerald is a producer for Yahoo Finance's "YFi PM" and "The Ticker."

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