Luxury Retailers Rise Above Pandemic Challenges

Sales revenues of luxury goods are expected to fall once customers can enjoy restriction-free travel to Europe, where such products are cheaper.

Unencumbered by Taiwan’s strict border controls, the luxury sector’s sales this year are set to reach a new high across a wide range of categories.

Times have never been better for Taiwan’s luxury goods industry, which has been insulated from pandemic-induced pain by its reliance on wealthy and high-spending domestic clientele. Data compiled by market research provider Euromonitor International show that luxury goods sales – including luxury automobiles – have grown steadily since 2019 and are set to reach a new high of NT$468.5 billion (US$15.7 billion) this year.

Business is booming across most of the luxury categories Euromonitor tracks. Personal luxury, which includes high-end designer clothing, leather goods, jewelry, eyewear, timepieces, writing instruments and stationery, consumer electronics, and personal care products, is expected to hit a record NT$259.2 billion this year. Meanwhile, fine wines, Champagnes, and spirits are forecast to reach NT$19.4 billion.

Regent Galleria, the luxury shopping center in the five-star hotel Regent Taipei, has achieved record-breaking sales during the pandemic, says General Manager Simon Wu. With domestic shoppers accounting for 80% of sales, it was able to adapt to the lack of international visitors without too much difficulty.

Taiwan’s luxury goods market has never been dependent on tourists, in contrast to Hong Kong, where they account for 80% of sales, notes Anna Dai, a Hong Kong-based beauty and fashion analyst for Euromonitor International. Taiwan’s luxury consumers also tend to be from its wealthiest demographic, which has been less impacted by pandemic-related disruptions. Additionally, these ultra-high net worth (UHNW) individuals have not been able to travel easily internationally for the past two-and-a-half years. “Their high purchasing power is stuck in Taiwan,” Dai says.

At the same time, the pandemic’s disruption of society has been less severe in Taiwan than in most other countries. By pursuing a de facto zero-COVID policy, Taiwan kept the capricious contagion at bay until almost 80% of the population had been fully vaccinated and 60% boosted, providing a strong level of protection from adverse outcomes. Though infections have skyrocketed since April when the elimination strategy was quietly abandoned, 99.5% of those cases have been mild or asymptomatic.

“In 2022, the vaccination rate is high, and people are less concerned as they learned from their experience last year,” Dai says, referring to the outbreak that began in May 2021. That outbreak, which occurred when Taiwan’s population was largely unvaccinated, was the only time during the pandemic when luxury brands across different categories saw a pronounced drop in sales.

For the first 16 months of the pandemic, Domaine Wine Cellars, a specialist in Champagne and Burgundy, had been doing brisk business selling its products to high-end restaurants, which were benefiting from the same local spending power as other luxury segments. David Pan, Domaine’s owner, notes that Taiwan saw “an explosion in high-end dining in 2020 and 2021 as people were not able to go abroad and young chefs were plotting their next steps.” In hindsight, “some new restaurants opened at an inopportune time,” he says.

Though case numbers in the 2021 outbreak peaked at around 700 a day, “that wave was severe by Taiwan’s standards,” Pan says. Noting the low vaccination rate (less than 1% when the outbreak began), Pan says “there was a lot of fear and the restaurant scene shut down from mid-May to August.” During that period, Domaine’s restaurant channel sales plummeted, he adds. 

VIP focus

Luckily for Domaine, its customers did not stop enjoying fine wine just because restaurants were temporarily closed. Both its retail and VIP sales picked up, helping significantly offset the revenue lost from the lack of restaurant sales. “The same consumers still drank; they just drank at home instead of in restaurants,” Pan says. 

Of the VIP segment, he notes that they benefited from the long bull run in the stock market and their investments in Taiwan’s property market that have appreciated throughout the pandemic.  “They had just as much buying power as before and continued to buy in similar volumes.”

Regent Galleria has been able to retain its existing VIP customers while adding new ones during the pandemic, says general manager Wu. He says the luxury mall did so “by constantly improving and differentiating our VIP services from others, with reward programs, exclusive events such as the annual Gala Night, monthly activities and premier benefits such as our shopping butler service.” The latter refers to personal shopping attendants that assist Galleria customers with arranging “private jewelry viewings, personal tours, provide fashion advice, and gift delivery services,” according to a company press release.

As many grew reluctant to visit crowded places during the pandemic, brands in the Taipei 101 Mall began offering home delivery of certain luxury goods to their VIP customers.

In some cases, luxury goods sellers had to adapt their sales channels to the circumstances. While Taiwanese generally tend to be cautious about exposure to COVID, VIPs, who are the biggest sales drivers in Taiwan, tend to be older (mostly in their 50s and 60s) and are thus more concerned about infection, says Catherine Sun, director and head of mall operations at Taipei 101. Younger luxury consumers have concerns of their own, as some have unvaccinated young children.

Brands in the Taipei 101 Mall adapted to the challenging circumstances by hand-delivering certain luxury goods to the homes of VIP customers who did not want to go out. “Certain items, like watches and handbags, can be sold more easily without the customer entering the store because it is not essential that they try them on for size,” she says. Some watch buyers purchase the timepieces for their personal collections or as investments and are thus not focused on the fit.

To be sure, clothing and shoes are less conducive to this type of sales. However, Sun notes that the American fashion house Coach, a specialist in leather luxury goods, has a dedicated sales channel on the LINE messaging app for its VIP customers in Taiwan, allowing them to select various clothing and accessories that Coach will then deliver to them at home. If they like the items, they can pay Coach later. Otherwise, the company will take it back free of charge.

Euromonitor’s Dai expects that Taiwan’s luxury retailers will continue to cultivate the VIP market because of its unparalleled spending power. While some brands may offer enhanced online shopping, unlike in some other retail segments, digital sales will not be the focus. Flagship physical stores will continue to play a crucial role in sales. For luxury brands, “online channels mean providing options,” Dai says. “It’s part of offering good service, but it’s not their focus.” 

She expects that luxury brands will step up efforts to woo VIP customers as Taiwan prepares to relax its remaining border controls. Currently, all arrivals are required to quarantine for three days and do “self-health monitoring” for an additional four. However, that could be replaced by a “0+7” policy of no quarantine and seven days of self-health management by the fall.

Outbound travel is expected to accelerate quickly when remaining border controls are eased. While many businesses will breathe a sigh of relief, for luxury brands in Taiwan the change will pose a challenge, Dai observes. “Sales revenue is expected to fall as consumers travel to Europe to purchase luxury goods that are cheaper,” she says.

Not only are luxury products generally less expensive in Europe than Taiwan, but non-European Union tourists who visit countries in the EU can also claim a value-added tax (VAT) refund on goods they purchase during their trip as long as they depart within 90 days. 

Anticipating a surge in outbound travel from Taiwan, luxury brands are trying to offer more product selection, including products exclusive to Taiwan. “The idea is that you don’t have to go to Italy or France to get something exclusive,” Dai says. For his part, Domaine Cellars’ Pan believes many luxury retailers will have to grapple with a temporary fall in sales. For the luxury consumer segment, “international travel is an avenue of spending money in ways they have not had access to for almost three years,” he says. “A lot of people are hungry to do it.”