Luxury Brands Thriving During Economic Downturn
Following a slight decline during the COVID-19 pandemic, the luxury industry returned to pre-pandemic numbers by the end of 2022, with sales expected to grow another 4% by the end of 2023, topping out at $1.2 trillion.
Despite the recession, high inflation, and the ongoing Russio-Ukrainian war causing an economic downturn, the luxury market has consistently bucked the grim trend by posting impressive growth year over year.
Luxury brands are enjoying a boom post-pandemic. While the growth rate has slowed slightly this year, 95 percent of luxury brands enjoyed increased profits in 2022. For instance, Hermes reported a 38% profit increase year over year.
Meanwhile, the industry's most significant player, luxury goods maker LVMH, has risen through the ranks of the world's most valuable companies, and stands alongside tech giants like Tesla, Apple, and Amazon, surpassing $500 billion in market value. Since 2021, LVMH's CEO Bernard Arnault and Tesla's CEO Elon Musk have continuously alternated between the no. 1 and no. 2 spots in Forbes's Real-Time Billionaires List.
The luxury boom comes even as other sectors struggle to bounce back post-pandemic. Historically, luxury brands have been uncannily resilient in times of crisis. Even with that track record, though, the industry's current performance exceeds the wildest expectations.
Crisis-Proof Customers
Demands for luxury brands barely waned despite rumors of a recession because their target customers are crisis-proof. In 2022, the World's Billionaires list added 573 new names. The world's 2,640 billionaires have a combined worth of $12.2 trillion. While many in the world are mired in economic setbacks, the rich are getting richer.
Naturally, their buying power goes against typical economic sense. These people willingly purchase what they view as status symbols, and pay top dollar to do it. The fact that luxury brands are steadily raising prices by 5-10% year-over-year matters little. Such a strategy only fuels the desirability of luxury items.
Post-Pandemic Behavioral Changes
After lockdowns eased, pent-up demand for consumer goods — luxury items included — exploded, resulting in an unprecedented 21% growth of luxury goods revenues in 2021, followed by another impressive 22% jump in 2022.
As the world came out of an emotionally taxing pandemic, consumers needed trustworthy brands more than ever. They gravitated toward luxury brands that promised top-notch service and quality craftsmanship to fulfill that need.
Brand Positioning: Exclusivity, Status, Aspiration
Exclusivity and status symbols play a central role in the appeal of luxury brands, especially during economic downturns. Scarcity and limited availability create a sense of exclusivity and prestige, making consumers more inclined to purchase luxury products to showcase their status and affluence despite economic challenges.
For millennials and Gen Z customers, brand story and brand experience factor heavily in their purchasing decisions. Aspirational marketing that captures the concept, proven by social media metrics, easily penetrates their consciousness and, by extension, their buying decisions.
Designer brands are also quick to respond to the younger generations' socially conscious sensibility — incorporating environmental, ethical, and, at times, political stances in their messaging.
Evolving Marketing Strategies
Luxury brands employ marketing tactics that transform conventional buying wisdom to keep up with shifting consumer behaviors. Barring a few exceptions, gone are the days when these brands acted like the best-kept secrets. Relatability is key.
Today, the most prominent brands, like Louis Vuitton, Gucci, and Balenciaga, look nothing like they used to. Once known as a fine leather luggage company, Louis Vuitton kick-started this trend by collaborating with streetwear brand Supreme for a limited edition clothing collection in 2017.
Under creative director Demna Gvasalia, Balenciaga adopted the designer's subversive style — honed from his years building the streetwear giant Vetements — and roped in rapper Kanye West for a collection. Today's Balenciaga is a far cry from Cristobal Balenciaga's haute couture days.
To drive the growth, luxury brands enlarged their customer pool marketing to the younger demographic groups of millennials, Gen Z, and Gen Alpha. According to Bain & Co. research, Gen Zs start buying their first luxury items at 15 — much earlier than millennials.
More and more brands are hiring teenage and young adult celebrities as their ambassadors to support this new direction.
All four members of K-Pop supergroup Blackpink represent at least one luxury brand: Lisa works with Celine and Bvlgari, Rosé contracts with Yves Saint Laurent and Tiffany & Co, Jisoo with Dior, and Jennie is with Chanel and Calvin Klein.
Likewise, stars with massive Gen Z fan bases, like BTS, Zendaya, and Harry Styles, have been hired to endorse major fashion houses.
Digitalization of Shopping Experience
Luxury brands used to stay away from an online retail presence to keep their products elusive and exclusive. Things changed when the pandemic hit and consumers couldn't visit physical stores. All brands started amping up their digital presence and the strategy paid off. In 2022, 20% of total luxury goods sales came from online platforms.
Everything Is Luxury Now
Luxury retailers used to be more segmented. There were beauty brands, fashion brands, and jewelry brands. Not anymore. To increase their revenues, brands are expanding beyond their original offerings through collaborations or in-house endeavors. Perfumes and jewelry have become go-to extensions for nearly every company, but some are even more ambitious.
Louis Vuitton led the charge by entering the lifestyle business, opening an airport lounge in Doha, Qatar, and prepping its first hotel in Paris. Meanwhile, Dior has opened upscale Dior Café branches everywhere from Saint-Tropez, France to Seoul, South Korea.
Consumers are also more willing to splurge on luxury for everyday goods. Demands for high-end housewares, including cookware and small appliances, have seen considerable spikes in the last few years.
With many luxury options available today, it's no wonder the sector is having a record-breaking moment.
This article was produced by Media Decision and syndicated by Wealth of Geeks.