Fashion Luxury and Innovation Notes

Evolution of the Global Luxury Market

  • Pre-War:
    • End of the Victorian era.
    • Birth of Chanel, Prada, Elizabeth Arden.
    • Rise of Hollywood's influence on fashion.
  • Post-War:
    • Era of Minimalism, "New Look" of Dior.
  • Sixties:
    • Women's emancipation: the stiletto.
    • Youth movements: unconventional dressing (rise of Mary Quant).
    • American ready-to-wear and understated designs: Ralph Lauren, Calvin Klein.
  • Seventies:
    • Rock musicians as fashion icons.
  • Eighties:
    • Rise of supermodels.
    • Punk culture becomes fashionable.
    • Japan and Russia rise as major consumers.
  • Nineties:
    • Increased competition leads to professionalization and diversification.
  • 21st Century:
    • Rise of e-retail.
    • Democratization of luxury with new designers, new consumers, and new markets.

Global Luxury Market Dynamics

  • Luxury Downturn Bites:
    • Ultra-luxury brands are expected to outperform amidst a luxury slowdown.
    • Weaker post-pandemic spending outlook across markets.
    • Core luxury spending markets total household spending in LCU (Local Currency Units), real % year-on-year, average (2015-2029).
    • Comparison of Pre-pandemic (2015-2019) vs. Post-pandemic (2025-2029) periods.
  • Ultra-Luxury Brands Show Better Performance:
    • Share price performance of select luxury brands (Jan 2025 = 100):
      • Burberry
      • Hermès
      • LVMH
      • Moncler
      • Kering
      • Prada
      • Richemont
  • Rainy Day Blues:
    • Calendar first-quarter sales (year-on-year % change) for:
      • Prada
      • Brunello Cucinelli
      • Hermès
      • Moncler
      • LVMH
      • Burberry (retail)
      • Kering

Current Luxury Market

  • Some strategies are failing on profitability and no longer maintain growth.
  • Increasing sophistication and diversification of consumer tastes have caused fragmentation of demand.
  • Legacy luxury brands are re-examining the value of brand heritage and history.
  • Luxury Business Model Transformation is occurring.
  • Personalization and experience are struggling to drive Luxury exclusivity.
  • Data is the new luxury, and it has implications for decision-making.
  • Harnessing the power of AI in value creation.
  • The global luxury goods market is expected to increase to 418.9bn418.9bn in 2028.
  • Geological Disruptions.
  • Higher degree of correlation with geopolitical events.
  • New competitive landscape.
  • Niche markets are creating opportunities for growth.

Brand Performance

  • Hennessy (LVMH) will cut its workforce.
  • Hermès overtakes LVMH for luxury's top spot in market capitalization in April 2025.
  • Burberry struggles amid downgrade from FTSE 100.
  • Burberry to cut workforce by almost a fifth in cost-cutting drive.
  • Burberry made an operating loss of £3mn in the 12 months to March 29, compared with a £418mn profit the year before.

Consumer Behavior and Market Trends

  • Consumers are questioning the true value behind luxury prices.
  • Aspirational Luxury Outshines High Fashion Names.
  • Luxury Brands Reduce Discounts in China to Maintain Exclusivity Amid Economic Slowdown.
  • Consumers are feeling alienated but waiting for brands to foster experience and creativity to increase their spending again.
  • Consumers alienated by price increases and uncertainty.
  • Willingness to spend mainly linked to expectations on creativity and experience.
  • Affordable Luxury Sales Growth Overtakes High-End Fashion.
  • High-end luxury vs. Affordable luxury sales growth (2021-2024).
    • Reasons for detachment (price increases, economic uncertainty, no innovation).
    • Reasons for future spending (confidence in an improved personal financial situation, excited by new product launches, positive luxury brand experience).
  • Tariffs are not expected to strongly impact luxury purchases.

Old vs. New Luxury

  • Old Luxury:
    • Conspicuous consumption
    • Indulgence
    • Exclusivity
    • Elitism
    • Extravagance
    • Wealthy 1%
  • New Luxury:
    • Practical
    • Functional
    • Silent
    • Personalized
    • Democratic
    • Experiential

Hyperpersonalization of Luxury Cars

  • Helping buyers design their dream vehicle is now a new market.
  • A route for Massive Profitability.
  • Companies that have mastered the art of personalization include Ferrari, Lamborghini, Rolls-Royce, and Bentley.
  • Personalization is not only about giving clients a distinctive vehicle but also allowing them to participate in the design process.
  • Rolls-Royce is building a new £300mn extension at its headquarters to allow space for its increasing number of time-consuming bespoke projects.

Jewellery Market

  • Macroeconomic and geopolitical volatility.
  • Many brands have passed the costs of high gold on to consumers.
  • Rolex increased the prices of its gold watches by 8% at the beginning of this year, following two price increases in 2024.
  • Lower brands in the consumer pecking order will have to adjust to lower volumes.
  • The effect of rising gold prices could be a spike in pre-owned prices as buyers look to take advantage of a dip in the market.

Business Cycles Phases

  • Boom:
    • A period of economic prosperity and growth.
  • Downturn:
    • Transition from expansion to recession.
  • Recession:
    • A phase of negative growth.
    • A severe and persistent recession is known as a slump.
  • Recovery or Upswing:
    • A period when the economy starts to experience renewed growth after a recession.

Characteristics of Resilient Luxury Brands

  • A good brand can withstand a slowing economy.
  • Brands which double their efforts at making themselves able to thrive.
  • Effective response to offset the decrease in spending.
  • Awareness of the opportunities that a downturn offers.
  • Taking the right actions / strategies to gain from downturns.
  • Ability to maintain or improve the kind of value, property, and benefits that the brand promises its consumers.
  • Financial Discipline and Long-term Thinking.

Qualitative Strategies of Luxury Brands to overcome a Downturn

  • Qualitative Strategies: Efforts aimed at enhancing brand loyalty through focusing on specialized core businesses.
  • New Product Strategies: Conspicuous Products, and Hyper-Personalized Luxury products e.g. personalized cars in 2025
  • Brands become more conspicuous: not as effective as in the past.

Focus on Branding

  • A Downturn is the best time to build relevance.
  • High brand equity helps insulate against the switching to cheaper own labels.
  • Brands need to communicate the DNA of their proposition to the consumer.
  • To survive, luxury must return to its roots, producing the ultimate that money can buy - Investment in oneself e.g Burberry in 2024-2025.
  • Brand messages should focus on emotional relationship with the brand and the shopping experience.
  • Focusing on the brand identity: Brands need to restructure the messages within the context of their image and identity.
  • Embracing digital to promote and feature the brand has to be increased.

Spending on the Brand and Avoiding The Sales Mentality

  • When others are cutting their spending and losing the emotional engagement with customers, it will pay in the longer term to spend on the brand.
  • Sales promotion leads to Brand Erosion and loss of identity; consumers get confused as to what the brand stands for.
  • Instead of sales promotion Spend on Engagement.

The role of Marketing in a downturn

  • Research the customer and how they are responding to the recession.
  • Maintain marketing spending to maintain return on investment at lower cost.
  • Adjust product portfolios and reforecast demand for each item.
  • Support distributors with generous return policies and stocking up the full product line.
  • Adjust pricing tactics and its guidance.
  • Innovative segmentation: Marketers should segment customers according to their recession psychology.

Managing in Downturn : Advertising Function

  • Cutting advertising budgets during recessionary periods is damaging. If the brand loses market share, it takes a long time and a lot more money to gain it back.
  • 1927 - Roland Vaile in the Harvard Business Review reports biggest sales increases by companies that advertise the most.
  • 1974-75 – ABP & Fewsmith study showed companies that did not cut advertising had higher sales for two years and for two years after recession.
  • 1981-82 - McGraw-Hill Research Laboratory of Advertising study showed firms that maintained or increased ad expenditures averaged significantly higher sales growth during the recession and for the following three years.
  • 1990 - WPP Groups found that recessionary periods offer a unique opportunity for companies to build share and position themselves advantageously for a recovery.
  • 2009 - Tellis & Tellis reviewed over 40 reports looking at advertising in recessions in the last hundred years. They concluded that firms that increased advertising during a recession experienced higher sales, market share, or earnings during or after the recession.

The role of HR in managing the downturn

  • Luxury brands should review and revise their HR strategies to ensure they align with changes in the organization’s vision and business strategy.
  • HR should assess their priorities & budget allocations to ensure they are not making false decisions.
  • HR should review the Return On Investment (ROI) for each organizational initiative they are delivering and reinvest where they adding the most value.

Challenges facing the Luxury Market

  • Responding to the pressures of inflation.
  • Efficient use of Data and AI Adoption.
  • Efficient Management of the new Value Chain.
  • Shifting economic, consumer, and societal trends.
  • Lowering the negative spillovers from the financial markets and gold prices.
  • Innovation in search of exclusivity.
  • Lack of Managerial Talent.
  • The reverse of globalization.
  • Expanding into new categories, ignoring the Brand’s DNA.
  • Too much focus on high spenders.
  • Poor Pricing Strategies / Alienating Customers.
  • Poor Risk Management (Brand and Reputational Risk).