Although some predict the end of the global luxury bubble following a significant decline in sales growth for luxury goods group LVMH, there is still hope for luxury brands and retailers.
The entire fashion industry, including the luxury sector, has faced various challenges in recent years, from soaring inflation and slowing economic growth to ongoing Covid-19 restrictions in China and the start of war in Ukraine in 2022. As the economic slowdown will continue into 2023, it will become increasingly difficult for many luxury industry players to maintain their competitive edge while responding flexibly to changes in the industry and consumers.
Three key strategies for luxury brands to navigate economic uncertainty
Despite these challenges, many industry players are in a much stronger position than they were a year ago. From 2020 to 2021, the fashion industry achieved a 21 percent jump in sales, with EBIT margins doubling by six percentage points to reach 12.3 percent, according to McKinsey & Company’s “The State of Fashion 2023” report. Additionally, 95 percent of luxury brands saw profits increase in 2022, according to a Bain & Company report, underscoring consumers’ continued appetite for luxury goods.
The fundamentals for luxury consumption remain strong globally as affluent consumers continue to travel and spend and are more insulated from hyperinflation. As luxury sales continue to remain resilient, a new study from Edited, an AI-driven merchandising experience platform, and global consulting firm Bain & Co. examines three key reasons why luxury brands are likely to remain resilient amid economic turmoil.
1. Expertise in pricing based on the “high-low” principle
It is evident that the price range in the luxury market has increased since pre-pandemic, with a clear shift towards higher value products. Research from Edited found that the average price of luxury products has increased by 25 percent since 2019. Overall, luxury women’s clothing remains the most expensive luxury category with an average price of $3,395.12 (€3,200.21) per piece. Men’s outerwear, which costs an average of $3,305.94, has seen a 20 percent price increase over the past four years.
Even though prices for luxury items have increased, many entry-level prices remain stable. By introducing more exclusive, higher-priced items, luxury brands can increase their entire price range while capturing greater sales opportunities. However, the study authors warn luxury brands that creativity and innovation should drive their high-low price strategy. To keep consumers engaged, fashion houses should ensure that entry-level models shine with their own value and do not appear to be a mere shadow of their more expensive counterparts.
2. Stricter guidelines for discount management
Over the years, countless studies have shown that consistent discounting subtly signals a compromise in quality, inadvertently reducing the perceived value of the brand in the eyes of consumers. One way for luxury brands to maintain their perceived value despite the strong headwinds is to scale back discounting. At least with the official discounts. Research from Bain & Co. found that luxury brands have reduced their official markdowns on both men’s and women’s fashion and accessories by an average of five percent.
By discreet offers for loyal customers, luxury brands can maintain their appeal and product exclusivity while strengthening customer retention and loyalty. To maintain a sense of stability, luxury brands should keep a firm grip on their discount strategies. You should keep a close eye on discounts across all platforms and adjust production as necessary to avoid unnecessary sales.
3. A more flexible and responsive product range
Since the pandemic, several luxury brands have cleverly tapped into fast-growing categories, overtaking traditional brands in the process. While iconic luxury fashion houses such as Gucci, Hermès and Valentino have recently expanded into makeup and skincare, others have tapped into emerging, on-trend categories such as loungewear and casualwear. Research from Edited shows luxury casualwear ranges doubled from 100 to 200 and partywear to 194, while regular brands saw a more modest rise to 130.
With growing interest in these categories, luxury brands can reach a wider audience by incorporating the latest trends into their product range. By streamlining product lead times and strengthening supply chains, they can quickly take advantage of emerging trends and make their product range more flexible. However, the authors of the study noted that luxury brands should be wary of expanding into areas or categories where they have no legitimacy in order not to lose their authenticity.
Through the final quarter of 2023, proactive strategies that take these three factors into account, combined with the appeal of luxury brands to global consumers, will ensure continued stability, even though the bubble may burst.
This translated article previously appeared on FashionUnited.com