Fashion’s leading players just released their Q2 reports, and while some brand’s sales are continuing to have a downward trajectory, others are showing a surprising amount of growth. At first these results seem to indicate a luxury spending slowdown, but the labels that are coming out on top demonstrate it may be a shift in consumer values, not finances. Reports are as follows after the first half of 2024: LVMH is down 14%, Kering is down 11%, Richemont is down 1%, and Burbery is down 22%. However, Hermes reported growth of 12%, Prada Group had 18% growth (you can attribute that to hugely successful Miu Miu who was up a staggering 93% year-on-year) and prominent outerwear brand Moncler is up 8%. There are speculations as to what is causing the diminishing numbers for key conglomerates who have been struggling. Let’s break down some of the concerns.
It’s no secret that luxury brands rely heavily on the Asian market for continued success. LVMH’s largest revenue share is consistently non-Japan Asia, with China accounting for roughly 20% of their global sales. While there has been slight growth in the Japanese market, China is feeling economic strain that is reflected in consumer’s spending. Their last year has seen collapsing property values and high youth unemployment. While initially China’s market was predicted to improve, 2024 has proven to be stagnant. The People’s Bank of China just implemented a series of interest rate cuts in an attempt to reinvigorate a cooling economy, so the next few months will tell whether or not those measures proved to be effective.
Meanwhile, US shoppers have their own set of concerns. Lingering inflation is still being felt around the country, and political uncertainty leads to more conservative spending. Additionally, American consumer’s preferences seem to be reverting back to pre-pandemic values such as travel and experiences rather than tangible goods.
Economic concerns aside, a cooling demand for luxury goods may be a direct result of luxury brands alienating average middle class consumers. The past couple of years have seen brands implementing drastic price hikes that aren’t reflecting average inflation. Combined with underwhelming craftsmanship and lack of innovation, product quality doesn’t necessarily reflect the price increases. For example, Chanel Classic flap bags now retail upwards of $10,000 after another price hike in Spring of this year, which puts their most popular bags into the same price category as rival Hermès. This prices out aspirational shoppers who used to be able to stretch their budgets to purchase one of those coveted quilted bags. While the quality and residual value of Hermes’ products are continually praised, social media users have been quick to point out Chanel’s diminishing product quality. (Chanel is a privately held company and hasn’t reported on 2024 sales yet, but they saw revenue growth of 16% in 2023)
Leather goods aside, many brands are choosing to play it safe and tone down the creativity, appointing creative directors who tend to lean more conservative in their design ethos. This is not a new strategy. Time after time, CEOs of fashion conglomerates decide which direction they want their brands to go to stay competitive and hire a designer to reflect that vision instead of letting the creative team be, well, creative. While these houses are marketing the quality and timeless-ness of understated styles, consumers may just see an oversaturated market. Brand loyalty will only go so far if the general consensus is that cool brands are losing their cool factor.
So what’s driving success for Miu Miu, the cool girl brand started in 1992 by Miuccia Prada, or Milan-based Moncler, famous for their $2,000 down coats? One may speculate the success of these brands is in part because they are authentic with a clear message. Their products are distinguishable without the use of heavy logos; they rely on their quality and uniqueness. Luxury houses can’t necessarily depend on just their prestigious heritages anymore. Consumers nowadays are too savvy. Gucci and Burberry both recently inaugurated new creative directors in an attempt to do a complete overhaul of their businesses, but rising prices and unclear brand image ultimately ended up alienating the long-time clients they rely on.
It’ll be fascinating to see who’s back on top, or not, at the end of the year. Maybe it’s not a luxury slow down after all, but a luxury shake up.
