The world’s biggest luxury goods companies’ results this year brought mainly bad news, their luster dimmed by a sector-wide slump following a years-long sales boom due to Covid-19. Excluding the pandemic year, global sales of personal luxury goods are expected to fall by 2% to 363 billion euros for the first time since 2008, according to Bain & Company.
“As affluent customers have shown more resilience, brands have focused their marketing efforts and created experiences tailored to this demographic,” said Claudia Dalpizio, partner and head of luxury goods at Bain & Company. ” he said. “While we saw some growth at the top of the pyramid, the rest of our customer base saw significant declines, with 50 million people set back.”
Geopolitical risks posed by elections (more than 60 countries will go to the polls in 2024) and conflict also affected consumer confidence. Online retailers have closed stores (Matchfashion) or reorganized under new ownership (Farfetch and Coupang, Youkes Net-a-Porter and My Theresa), while companies with stagnant profits have consolidated ( Saks Fifth Avenue owner HBC acquires Neiman Marcus in $2.65 billion deal); The Tapestry-Capri merger collapsed after months of court battles with antitrust regulators.
Luxury analysts expect the sector to see some improvement heading into 2025, even if sales growth remains low. Achim Berg, an independent luxury advisor and former senior partner and leader of McKinsey & Company’s luxury division, where he worked for 24 years, said the recovery will depend on regulatory changes under the new administration and certain future developments. We believe that this may be brought about by changes in the macro environment such as conflicts. Until the end. He says some optimism is needed and the prospect of further declines in luxury goods will be “uncomfortable”.
“Stability always helps consumption,” agrees Dalpizio.
Prices of luxury goods will be realistically checked
European luxury goods have seen significant price increases of at least 52% since the post-pandemic 2019, according to HSBC, as brands sought to maintain margins amid rising manufacturing and raw material costs. , also cited inflation and regional price imbalances as reasons. .
This is a wake-up call for brands such as Burberry and Mulberry, which have been marred by profit warnings and declining sales due to ill-timed moves into the luxury market, and are now charting a new path under new bosses. has been proven. Meanwhile, Hermès is one of the few major companies to have weathered the storm. That steady growth shows that wealthy people are still willing to spend if they see value in what’s on offer.
Unlike previous years, when some of the growth in luxury goods sales was driven by price inflation, there are solemn expectations that from 2025 growth will be driven by sales volumes. “The industry mispriced the past few seasons and will need to correct that,” Berg said.
Brands will be held accountable
For many people, the price of luxury goods has always been prohibitively high. Companies will continue to look for ways to maximize profits, but as supply chains come under increasing scrutiny, one area where they cannot compromise is environmental, social and governance aspects.
Recent investigations into allegations of worker exploitation in the supply chains of luxury brands such as Dior, Armani and Loro Piana have shown that they can maintain their reputations by promoting the idea that their products are typically made by artisans. This is a detriment to the industry in which it is valued. In France and Italy, as opposed to fast fashion, it is essentially of the highest standard.
Many groups, including Chanel and Only the Brave, owner of Maison Margiela and Diesel, are investing in acquiring suppliers and bringing them in-house. Ethical and social responsibilities cannot be ignored, says Dalpizio. “The reputational impact of mistakes in the supply chain can be too great, leading to boycotts and significant revenue losses.”
I need a jolt of creativity
One of the recurring complaints among editors is that they feel that fashion these days is a bit “boring.” As brands seek to reduce risk, many are focusing on iconic items (to reach shoppers looking to invest in more classic, timeless products) or commercial We have taken a conservative path, offering a style that is both practical and subtle. But while it’s natural to feel comfort in the familiar, clinging to old ways can stifle innovation and creativity.
Reprints and remakes of popular products are partially contributing to the growth of the second-hand market (which is not a bad thing). Dalpizio observes that “the same bags, shoes, clothing” can be found in both new and secondary channels. Meanwhile, younger generations are also consuming in ways that they feel are more environmentally respectful.
A major change in the luxury industry’s creative leadership could reignite excitement. Chanel, Bottega Veneta, Givenchy, Tom Ford, Celine, Lanvin and Calvin Klein are among the brands planning to debut new designers. Without a creative director, Fendi, Margiela, Helmut Lang and Kalven will need to fill the void. And question marks remain over whether Dior, Loewe and Gucci will make new appointments or retain their current designers.
People rediscover the joy of dressing up
After going through an era of “stealth wealth” clothing where people adopted a more classic, pared-back (borderline basic) look, the same trend is likely to continue, with the inevitable influence of algorithms on social media platforms such as TikTok. On a global scale, Net-a-Porter and Mr Porter fashion director Kay Barron wants to see a return to personal style, where “individuality and individuality come to the fore”.
For Baron, the rise of “quiet luxury” provided an opportunity for people to reset and shape the components of their wardrobes. “Our customers are always looking for items that will last,” she says. But the re-emergence of romanticism in fashion, as seen at Chloé, Margiela, Valentino and others, will give way to “subtle statement dressing” which involves “tailoring clothes and making them more personal”. In other words, getting dressed becomes fun again.
New appeal for mid-market brands and customers
A limited number of ultra-high-net-worth individuals will require brands to tweak their strategies. Valentino CEO Jacopo Venturini said in September that the company is focused on expanding product categories to “complete our customers’ wardrobes.” But altitude remains a top priority. Venturini ended his sublabel Red Valentino earlier this year.
The big question for brands is whether they want to serve the rapidly growing middle class of customers in some countries. Bain predicts more than 300 million potential new customers in this segment will emerge over the next decade from regions such as India, Mexico, Southeast Asia and Africa.
Contemporary brands with strong value propositions will also regain appeal with shoppers who appreciate unique and innovative designs at fair price points. This is evidenced by brands with active communities such as Toteme, Aimé Leon Dore, and Studio Nicholson expanding internationally (and staying ahead of foreign competitors).
There are no quick fixes in China.
A weaker currency and a resurgence in Chinese tourism have helped Japan emerge as a bright spot for luxury spending as China’s economic slowdown and crackdown on flaunting wealth take their toll. (LVMH, the world’s largest luxury goods group, is among those riding the wave.)
Dalpizio cautions that it remains to be seen whether the boom will continue, as brands will likely adjust prices to avoid regional disparities. However, China (where luxury consumption has not yet recovered to pre-pandemic levels) will continue to be a key factor due to its growing middle class. She says 150 million new aspiring shoppers are expected to emerge from China over the next 10 years.
That’s why Moncler CEO Remo Ruffini keeps his foot on the gas pedal. In October, the Italian skiwear brand held its Genius Project in Shanghai, marking the first time the annual blockbuster extravaganza was held outside its home base of Europe. Success in China requires sophisticated strategies for an evolving and mature market.
As integration increases, withdrawals decrease.
Once the luxury sector reaches an inflection point, it is not easy to break out of it. “We have had 15 years of extraordinary growth,” Berg says. “Company valuations have come down a little bit, but they’re still high. Margins and profits are also high.” But for companies looking to move forward safely, structures such as offloading underperforming assets may be helpful. changes may be necessary.
Despite the recent drop in interest rates and increased private equity activity in other sectors, there have been no notable deals in the luxury goods and fashion space, and Berg says it’s unlikely to happen next year. “The IPO market has not yet recovered,” he added, but expects further consolidation and much-needed overcorrection across the industry in the coming months. One thing is for sure, he says: “2025 is not going to be a boring year.”
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