The COVID-19 pandemic has sent a seismic shock through the retail industry, draining profits and forcing bankruptcies across the sector.
Though its customer base is generally more inoculated from the worst of the economic collapse, the luxury retail industry has also experienced its share of struggles. Simply put, people either have no extra money to splurge on $1,000 shoes or are stuck in home offices with nowhere to show off their outfits. Except for those at the very top of the food chain, like LVMH, virtually all luxury-goods companies suffered 20 percent or larger revenue declines in the first half of 2020, according to The Wall Street Journal.
But Senreve, the young direct-to-consumer company behind an Instagram-famous “It Bag,” is one of the few survivors in this nuclear winter of retail. Of course, it wasn’t completely unscathed by the sudden onset of a pandemic, but thanks to its digital-first business model, the company didn’t have to downsize or sell itself entirely as many other retailers did.
In a recent interview with Observer, Senreve cofounder and CEO Coral Chung revisited the darkest moments during the pandemic, the lucrative but tricky market in China (where life has returned to normalcy) and what the future holds for luxury shops overall.
The pandemic has rattled the retail industry globally. How has it affected yours? What’s the darkest moment for Senreve this year?
It’s been really up and down this year, and I think that’s to be expected. We started off the year really strong. But then, in March, our manufacturer in Italy shut down. If you remember, Italy was hit really hard by COVID-19, so our factory was closed for an extended period of time. That created some challenges for us from an inventory perspective. That was a very stressful time, for sure.
Thankfully, because our business is primarily digital-based, we’ve been operational. We have only one physical store in San Francisco, which has been closed since March. But that’s a minor part of our business. It’s where our office is located, so it’s primarily for internal team building and branding purposes as opposed to a sales channel.
Has the Italian factory reopened yet?
Yes, they have re-opened. But the capacity is different because of the social distancing measures and such, so there were still a lot of challenges in the past few months. We’ve had some delivery delays. As a brand, we’ve really taken measures to be communicative and transparent. And customers are tremendously supportive and understanding. We are very grateful for that.
Were there any strategic changes, such as layoffs, scraping sales goals and things of that nature?
We started 2020 really strong, so we’d had very aggressive goals. Yes, we had to revise them down. But things have stabilized a little bit for us, so we are on track to meet the new target. Fortunately, we didn’t have to do any layoffs like many retailers did.
I think one exciting area of growth for us is that we have, over time, become a much more global brand. Today, we not only have a significant brand presence in the U.S. and North America but also in Europe and especially in Asia. In certain Asia markets, we’re seeing 5X to 7X growth, which is incredible.
It’s interesting that you bring up Asia. What have you seen in the China market in terms of consumer sentiment for Senreve and luxury goods overall? The whole world is looking at China right now because it’s the first country to be virus-free and where things are getting back to normal.
We are still in our early days in China. There’s a lot of potentials, but I think China is really difficult to navigate. It’s a closed ecosystem. The e-commerce there is a monopoly and not accessible [to foreign brands] really.
For example, a lot of the marketing efforts we do in other markets don’t really translate in China. We started exploring our China strategy about 2.5 years ago. It took us a long time to understand that market, and I would say only this year we started really growing the business there.
How consumers in China want things differently than those in the U.S.?
For example, they definitely prefer smaller bags. They also love neutral colors like creams and sands more than consumers in other countries. Some neutral colors are popular globally, but some are very specific to Asia and China.
More broadly, we’ve seen an emergence of brands like ours that are kind of a departure from the traditional logo, very extravagant luxury heritage brands. Especially younger consumers, they want something more unique and not so prevalent in the market.
In March or April, I remember seeing news reports about a Louis Vuitton store in China seeing a flood of customers on the first day of reopening. People were sort of anxiety-shopping for luxury after a six-week lockdown. Do you anticipate a similar rebound in the U.S., at least in the short term, now that our lockdown is much longer?
It’s possible [laugh]. What I definitely see is that—and I feel this personally—when the world is in a depressed state, it’s very natural for people to look for bright spots in their lives. There’s a lot of pent-up emotion, and it’s biological. People are looking for inspiration to help them get out of their slump.
On a broad scale, what do you think are the biggest challenges facing luxury retailers in the foreseeable future?
It’s going to be challenging for basically anyone that is primarily off-line. A lot of brick-and-mortar brands have started to explore e-commerce, but it’s going to be a high hurdle. A lot of these businesses—as we saw recently with Barney’s bankruptcy and Neiman Marcus bankruptcy—were already financially challenged before COVID-19. So the pandemic only made things worse.
And a more important thing is the supply chain. A lot of luxury brands have manufacturers in Europe, so it’s critical to have the right diversification so that COVID-19 spikes in one region won’t shut down your operation completely.