Luxury brands are facing a period of unprecedented change, according to Nora Kleinewillinghoefer, partner at Kearney’s Consumer and Retail Practice. In a recent report, Kleinewillinghoefer warned that “stability” is a thing of the past for the luxury market, and that brands must adapt to survive.
“If you were to choose one word to characterize the recent past and the near future of the global luxury goods market, that word would be ‘change,’” Kleinewillinghoefer said in the report. “During the pandemic, a powerful phrase went viral, capturing the market’s hopes for a future that no one was sure would ever arrive: ‘the new normal.’ Underpinning this thinking was the belief that once the pandemic passed, things would be different but would eventually stabilize. The maxim was half right. The market has definitely changed, but it’s still evolving. Stability? That’s another story.”
Kleinewillinghoefer cited a miss on projected sales goals in 2023. A confluence of factors, including inflation, geopolitical instability, and the end of pandemic relief benefits, all contributed to the shortfall.
“Thanks in no small part to a challenging second half of 2023, the global luxury goods market missed the projected sales goal of $410 billion by an estimated 5 percent, coming in around $390 billion,” she noted. “Performance suffered from a confluence of adverse social, environmental and economic factors, including widespread inflationary pressures, an end to COVID-19 relief benefits, and geopolitical instabilities.”
The report then dived into several key trends shaping the luxury market including shifting demographics where Millennial and Gen Z shoppers, with growing spending power, are becoming a dominant force. There are also evolving consumer preferences. Kleinewillinghoefer said while luxury apparel and leather goods remain top categories, growth is expected to be higher in beauty, jewelry and personal care.
Another key trend is the evolution of omnichannel retailing. Kleinewillinghoefer said online sales are plateauing, with growth returning to pre-pandemic levels. Meanwhile, brick-and-mortar stores are making a comeback, and there is a greater focus on the in-store experience and the post-purchase customer care strategy.
With sustainability, regulations and ongoing consumer pressure are pushing brands to prioritize sustainable practices throughout their supply chains. There is also the emergence of technological innovations such as AI, predictive AI and generative AI as well as virtual reality, which are being used to improve everything from product design to customer experiences.
Challenges and Opportunities
The report details the challenges and opportunities luxury brands face:
- Economic Uncertainty: Mature markets like the U.S. and China are experiencing economic headwinds, leading to more cautious consumers.
- Rising Costs: Inflation and supply chain disruptions are forcing brands to raise prices, potentially alienating some customers.
- Counterfeit Goods: The rise of counterfeit products is a growing concern for luxury brands.
Key Takeaways for Luxury Brands
Kleinewillinghoefer concluded by offering three key takeaways for luxury brands to navigate this changing landscape:
- Adapt or Lose: Businesses must be prepared to adapt quickly with innovative products, marketing strategies, and customer experiences.
- Innovate or Stagnate: Heritage alone won’t be enough. Brands need to proactively embrace innovation and differentiation.
- Plan for the Future: Strategic planning with a clear vision is crucial for navigating the challenges ahead.
By understanding these trends and adapting their strategies, luxury brands can not only survive this period of change but also thrive in the years to come.