This week, McKinsey takes a look at what to expect from the luxury industry this year.
Growth has slowed, prices have peaked, and tariffs are on the horizon. It is a new era of luxury, the old rules no longer apply and the power of reliable strategy is gone.
To gain insight into the industry’s unprecedented dynamics and direction, Glossy spoke to Gemma D’Auria, a global leader in apparel, fashion and luxury, as McKinsey releases its ‘State of Luxury’ report this month. I heard it.
Will luxury goods prices continue to rise significantly this year?
“80% of the growth in luxury goods over the past few years Therefore, when surveying consumers around the world, there is a very limited tendency to accept price increases, especially when it comes to expectations for both product quality and product innovation. Consumers perceive that their needs are not being met. Therefore, we believe that in the near future, certainly in the next few years, there will be very limited room for price increases, but if prices do not increase, growth will need to come from volume. In the next few years, the market will Given that we’re expecting 1-3% growth and then 2-4% growth, which is much lower than the 2019-2023 growth, it’s going to be a very interesting differentiation game. Are you differentiating yourself to gain share from other brands, especially when consumer luxury purchasing trends have been negatively impacted in the last year?”
How can brands differentiate themselves?
“One way to do that is by leveraging great products, and in a way it’s a return to basics. In luxury homes, we promise our customers uncompromising product quality and an uncompromising experience. It really needs to happen, and it starts with making sure that you can guarantee that quality, especially at the size of the companies, and some of these companies have become very large. , it is one of the supply chain and unique selling propositions of the luxury goods industry. The demands placed on craftsmanship are unprecedented. Luxury brands must rescale their operations to align with their craftsmanship heritage in order to maintain the quality of their products.
The second way is through customer engagement strategies. (Brands) are doing very well by providing (exclusive experiences) to high spenders. Approximately 40-50% of growth in luxury goods is driven by the highest spenders. That’s great. But now, with AI, data, and analytics, you can personalize and deliver the best experiences at scale, not just to your highest spenders. …The experience you get when you walk into many luxury brand boutiques is mediocre. It’s not a “wow” experience, nor does it feel like you’re receiving special treatment. We know this is important to consumers, so this is where[brands]really need to work on differentiation. This includes “silver spenders,” or people over 50, who account for a large portion of current luxury spending and future growth.
Third, these companies need to become as attractive and appealing to their employees as they are to consumers. ”
The adoption of AI across the luxury goods industry has been slow.
“Yes. Think about what a sales advisor or client advisor could do if powered by AI. If they knew who you were, the types of purchases you made on your home, and your Recognizing preferences will make the (customer) experience more seamless, pleasant and effective. …I think there will be multiple pressures on (brands) to rethink scaling up AI. One is cost. The second thing is the fact that AI helps in creative ways. For a long time, it was a big taboo topic. We believe that AI cannot replace humans, but it can enhance their influence.We also discuss how AI will impact search.Consumers are overwhelmed with choice and luxury. What the experience has to offer you 1 One is curated experiences. AI can help with that. …There have been many small-scale pilots, but nothing has attempted to (luxury) unleash the power of AI on a large scale. These companies grew significantly through price increases and high spending, but they were satisfied with overall innovation, including product innovation, service innovation, and back-office innovation such as website search engines. I fell behind.”
What’s next for luxury e-commerce?
“I am very excited about what is happening in the world of online pureplay players such as Mytheresa and multi-brand retailers such as Moda Operandi.The consolidation that has occurred in the industry has created some winning business models. I hope that there will be a multi-brand place where people can discover brands, mix and match and find their own style. Analytics, data, AI This is a great example of a company that has driven profitability and growth through
To what extent will luxury goods prioritize brick-and-mortar retail?
“From 2019 to 2023, during this period of massive expansion, the luxury retail footprint in the Americas increased by 6%, with the Americas as the focus, followed by East Asia and Greater China. And then there are brands like Moncler, which has opened 130 stores around the world in four years. We don’t expect this pace to continue. That said, we believe this year will be a year of reset for brands, including in terms of luxury’s online and offline footprint. I’m thinking of the Middle East and even Japan, but a new center of wealth could emerge in the United States. And we think the slowdown will continue. We think[luxury brands]will be more cautious about opening brick-and-mortar stores going forward, and we think they’ll be more cautious about productivity. Because the reality is that not all stores are created equal, right? Stores are increasingly becoming the place where customers go to find brands. They are also a great tool for conversion. However, as much of the sales have moved online, the previous sales channels will not necessarily remain the same. I think it’s important to think about the role of stores in each market and which markets are best. And that has evolved rapidly.”
In 2025, can luxury brands afford to exit all distribution channels, including wholesale, e-commerce, and retail stores?
“I don’t think so. I think each channel has a role to play, including wholesale. There’s been a movement toward direct-to-consumer sales, and I think it’s been very successful for many brands. This means brands own the experience end-to-end and define a signature experience that represents what the brand stands for. At the same time, it also depends on the lifecycle of the brand. For early-stage brands or lesser-known brands, wholesale is an important channel. I don’t think there is a single (recommendation), but I think each of these channels still has a role to play.”
Is the Saks/Neiman merger a concern for brand customers?
“It will be interesting to see what effect it will have on consumers when everything happens. The department store model is a very difficult model to achieve. And it seems that it is being successful. The only regions of the world are the Middle East and some countries in Southeast Asia. But I’m optimistic, because (difficult) times like this often encourage innovation, and innovation is more important to consumers. Because it’s good for both the brand and the business of these channels, e.g. That includes model innovation. But I think the next 12 to 24 months will be volatile.”
Will upcoming US tariffs have a big impact on luxury goods?
“There are many possible scenarios, including different ways and speeds in which companies adapt to the environment. But thanks to tariffs, importers could generally reduce U.S. spending by $46 billion to $78 billion a year. And for luxury goods in particular, this will significantly dampen enthusiasm for the U.S. We’re actually very bullish on the U.S. as a market. However, at the same time, When we say we’re more bullish, we’re still talking about 1-3% when you factor in import tariffs and the fact that the coveted luxury consumer hasn’t returned yet. rather than 2-4% (growth rate). This means that tariffs will be a factor affecting many companies’ sourcing footprints, and how these companies will react to any tariffs, especially on luxury goods. It will be interesting to see what happens.”
Are returns as big an issue in the luxury goods industry as they are in other market segments?
“It continues to be a challenge, especially for online pure players. And the same goes for brands in certain categories, which is why we are more bullish on other categories. For example, we One reason why we’re more bullish on leather goods and jewelry than on ready-to-wear. One is that they are recognized as investment products, products with investment value.Also, many (luxury) fashion houses such as Louis Vuitton, Gucci, and Prada were born in the leather goods category. We think that if there is going to be luxury consumption, it will probably be in the leather goods category first, especially in the handbag category.”
Overall, what is your current view on slowing industry growth?
“That’s a good thing. It could actually lead to a healthier level of growth. We don’t see this as an apocalypse scenario, but an opportunity to strategically reset, where we play.” We see it as an opportunity to look at what you do, how you play, and how your product and your experience align with your brand’s DNA.”
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