Alarm bells are ringing throughout the high-end sector. 2024 did not end as luxury brands had hoped, with figures published by the sector’s main conglomerates showing a slowdown and some signs of exhaustion in the final quarter of 2024.
The slump in Asian markets is one obvious cause, but so too is the unusual reaction of consumers to sharp price increases. Aspirations and differentiation, which until recently were part of the DNA of luxury brands, are now thanks to phenomena such as hyper-fast fashion and “dupe” culture (low-priced products inspired by or imitating luxury goods). , is taking on a new dimension.
poor performance
Louis Vuitton Moët Hennessy (LVMH), the largest luxury goods conglomerate that owns 75 brands including Louis Vuitton, Christian Dior, Moët & Chandon, Hennessy and Veuve Clicquot, announced quarterly results showing growth. The rate was just 3%, significantly lower than the previous rate of 14%. Fashion saw a 5% decline in growth, while wine and spirits saw a 7% decline.
For Kering, the sector’s second-largest retailer with a portfolio of brands including Gucci, Balenciaga, Yves Saint Laurent and Bottega Veneta, sales were down 6% and 4% on a comparable basis. The examples are endless. Legendary brands such as Burberry and Lanvin have posted similar numbers.
This result can be analyzed in light of the growing panorama of global instability over the past year. 2024 saw intense geopolitical turmoil, with multiple serious open conflicts, intensifying technological competition, and more than 70 elections around the world. All of this creates strong economic uncertainty.
However, it is important to remember that the luxury goods market is very resilient in times of crisis. The industry has performed surprisingly well since the coronavirus crash, thanks in large part to accelerated digitalization and increased consumer behavior with the desire to splurge, a phenomenon known as “revenge spending.”
So what does this shift in consumption mean and what lessons can we learn from it? There are several key factors that could transform the world of luxury goods. , if companies want to keep up with the changes, they will need to change their strategies.
Read more: Who are the global super-rich people of tomorrow? We found out by interviewing teens attending one of the world’s most expensive schools .
Asia’s dragon economy is weakening
One of the decisive factors for these results is the diminishing idea that China is a place of unstoppable growth.
In recent years, entering the Chinese market has been a main goal for these brands and a natural place of expansion and growth. For example, between 2009 and 2019, the LVMH Group increased its store count in Asia from 470 to 1,453 (excluding Japan). The same goes for Kering, which increased its store count from 152 to 609.
Collections and marketing strategies also shifted to this market, targeting a growing and thriving middle class with no end in sight. However, the Dragon economy is currently showing signs of slowing down, with the decline in sales becoming quite noticeable in the luxury sector.
Figures released by LVMH predict that sales in Asia (also excluding Japan) are expected to fall by 16%. This is particularly evident in China, which previously accounted for 50% of the French group’s growth.
A lack of consumer confidence and restrained spending on luxury goods may explain this new outlook. But if China is not the country it once was, where can luxury brands find new winning strategies?
prices keep going up
The luxury goods group’s strategy is based on the extraordinary price increases of recent years. The escalation continues, with Hermès bags doubling in value and some Chanel bags reaching €10,000. Some of these works have doubled in value on the second-hand market. Watch prices are another obvious example, increasing by more than 20%.
It is natural for luxury brands to use price as a barrier to entry into mass consumption and as a means of maintaining exclusivity. It appeals to the ultra-high-net-worth and ultra-high-net-worth individuals with the aim of creating eternal aspirations. There is a Veblen effect in this market where higher prices create higher demand.
The concept is named after Thornstein Veblen, an economist and author of The Theory of the Leisure Class: An Economic Study of Institutions. In Chapter 7 of this work, entitled “Dress as an Expression of Money Culture,” Veblen explains that fashion and luxury are indicators of status. If aspirations are not built, luxury becomes meaningless.
Read more: What are Veblen and Giffen goods?
However, there appears to be another reason for this significant price increase. One widely reported reason is rising raw material prices, but geopolitical uncertainty and runaway inflation in recent years are also contributing to the rise.
cost of differentiation
The arrival of new entrants into the fashion world at the bottom of the pyramid has forced everyone to climb up the ladder and find out what makes them different. Lightning-fast fashion has made mid-market brands perceived as more aspirational, a move that has distanced luxury brands from new competitors.
Some point to a culture of “cheating” as the cause of this steady price increase. Copies or slightly modified imitations of luxury goods flood social media, especially TikTok, forcing brands to move further away from this type of consumption. Being authentic comes at a price.
The big question now is how far this price hike will go. Some wonder whether the consumers targeted by these brands, no matter how much money they have, will be reluctant to spend for the sake of spending. In other words, do they really see value in the product?
Quiet luxury: a new approach
It seems that it is no longer enough to position oneself as a luxury brand. These companies also need to find ways to create and demonstrate value. Price increases must always be justified by two factors that are the essence of luxury: creativity and quality.
Moreover, luxury is no longer synonymous with brand. The quiet luxury trend signals a desire to distance itself from flashy aggression by avoiding or hiding logos and distinctive details that reveal the brand.
This means that the brand is only recognizable to those with a more sophisticated knowledge of luxury goods. Silent luxury has the potential to expand its market to customers who are not only interested in the product itself, but also in their own well-being and a more relaxed lifestyle.
