Luxury Brands Need to Rethink Their Value Propositions
Luxury brands should rethink their value propositions and diversify their customer base to remain competitive in the market.
According to a recent study, the analyst notes a slight decline in the personal luxury goods market in the first quarter of this calendar year. The broader global luxury market has largely stabilized since 2023, exceeding €1.5 trillion in size thanks to a resurgence in travel luxury, a growing appetite for luxury experiences (such as hospitality and fine dining) and a strong holiday and fourth-quarter performance in the US. The personal luxury goods market is expected to grow modestly in 2024 to between €365-385 billion, up from €362 billion in the year prior.
Within the personal luxury goods sector, jewelry is a top performer at both entry level and the top end, surpassing growth in watches. Apparel has broadly outpaced accessories, while bags retain traction despite price hikes. The aspirational customer, meanwhile, has cut down on shoe spending, with a preference for smaller indulgences such as makeup, fragrances and eyewear.
China remains under pressure, partly due to spikes in Chinese foreign travel as well as rising economic uncertainties that have weakened demand. These uncertainties are undermining middle-class consumer confidence: the report says this group is experiencing “luxury shame” when purchasing higher priced goods, preferring understated products over those that are heavily branded; a trend partly spurred by the Chinese government’s crackdown on corruption and excessive spending.
Japan’s strong performance has been bolstered by tourism, particularly from outbound Chinese shoppers (at the expense of duty-free favorite Hainan, where sales are down 30 per cent year-on-year).
Despite macroeconomic pressures, growth remains in the US, with signs of improvement in GDP (it rose by 3 per cent in Q1) and consumer confidence (up 2 per cent in Q1). Challenges ahead include the fragility of the aspirational customer and the prospect of a presidential election in November disrupting consumer confidence.
The aspirational customer
The younger generation is spending less on luxury goods in real terms, according to Bain’s report. Younger millennials are also constrained by limited spending power, although older millennials are benefiting from inherited wealth.
Overall, in apparel, there is a concentration of efforts on the top of the pyramid and a little bit of a lack of creativity and newness. In the luxury industry, the companies tend to do the same strategy, which is particularly off-putting for younger customers. There is a taste for less fashionable items that has brought with it the sense that there is not enough excitement around new products, and this is probably reducing the growth of the market.
The right approach could be to take the “high-low” route with the hope to maintain resilience by nourishing relationships with top clients while future-proofing via widening the entry-level audience. This requires an increase in high-end offerings alongside simultaneously presenting improved entry-level products that deliver value to the customer. There is an opportunity for new affordable luxury brands that are authentic in their value proposition, as well as the chance for luxury brands to reach new audiences through sport, including those featured in the upcoming Paris Olympics.
Market conditions have prompted brands to focus on the traditional luxury consumer. Any successful expansion of the customer base will require brands to be more inclusive (diversity and inclusion efforts have backtracked amid economic uncertainties. Brands have now gone back to the old customers of luxury, which is not helping the dynamism of the market. Luxury companies succeeded in enlarging the customer base, but now these customers will be disappointed because they’re not being taken care of.
It’s hard to execute a brand turnaround in the current market conditions. Consumers tend to stick to their favorite brands and products in periods of instability — so brand turnarounds can take longer than expected. All changes in creative directors are not helping the sector because brands need to consolidate a creative vision. They can for sure create buzz, but the turmoil and changes in aesthetic are not helping. Those Brands that are succeeding have a clear proposition in terms of style and commercial attitude and know their customer very well.
Creating Long-Lasting Affinity
Succeeding as a brand in 2024 may require a shift in priorities selectively using brand-building tools to develop compelling brand stories, supported by a long-term strategy and underpinned by the right talent and channel investments.
Chief marketing officers and their teams will need a laser-sharp focus on customer perception and cross-funnel strategy, working with creatives and brand specialists as well as data, finance and strategy leaders to form a cohesive brand story. After years of focusing on performance marketing, CMOs must now invest in hiring and training teams to bolster brand marketing capabilities, ensuring that the marketing department contains both brand and performance marketing specialists that can work closely together. Indeed, more companies may hire chief brand officers as brands take a more holistic view of their storytelling and marketing efforts.
Undergirding this is a focus on the long-term story. This will require a mentality shift, with impact measurement focused on longer-term, strategic horizons, rather than instant return on investment — while blockbuster marketing campaigns can generate immediate buzz, maintaining consumer attention thereafter is a challenge. Consumers expect to see brand stories that are consistent and authentic; the success of purpose-led brands such as Patagonia are proof points. Brand marketing may need to be maintained with consistent storytelling throughout consumers’ day-to-day lives, from large-scale events to touchpoints on social media. However, 2024 won’t be about generating more and more content, or perpetually refreshing brand identities. Now, the focus needs to be on “less is more,” with carefully crafted storytelling that amplifies a brand’s clear, coherent personality.
Why CDI
Fashion and Leisure Mergers and Acquisitions
The Fashion and Leisure industry includes wearable fashion and retail accessories, as well as beauty products, fragrances, and personal care items. Consolidation is a major trend for Fashion and Leisure brands, making the number of players in the industry ever smaller. While most of the M&A fashion frenzy is centered in Europe, the interest in acquisitions from Asian investors cannot be overlooked. One of the primary reasons for the continued interest from overseas investors is the industry’s growth potential. Conglomerates with multiple brands have been consistently more profitable, which provides mergers and acquisitions incentives.
At CDI Global, our team of experts draw upon their decades of experience working across borders to consult and strategize the best available deals and entry points. CDI Global’s proven transactional execution capabilities, combined with specialists who know the pulse of Fashion and Leisure mergers and acquisitions, make us a leading advisor in this sector.
By Massimiliano Morpurgo, Partner (Italy)
