Following a record year in 2023, the luxury market is navigating a confluence of disruptions, from global conflicts and economic volatility to changing consumer expectations.
After exceeding a record €1.5 trillion last year, the personal luxury goods market declined between 1% and 3% year-over-year, according to Bain & Company. “We are in a moment of great macroeconomic uncertainty at a global level,” explained Federica Levato, Senior Partner and co-author of the Worldwide Luxury Monitor from Bain & Company. Between the wars happening in Europe and the Middle East, and economic uncertainty in the U.S. and China, “it’s the first time in history that the worldwide economy has this level of uncertainty throughout the globe.”
Households also are feeling the strain on their wallets due to inflationary pressures. With the cost of living rising and basic grocery necessities becoming more expensive, few consumers have the means to purchase high-end luxury goods, particularly those that are becoming more expensive in their own right.
“During COVID many luxury brands increased prices at double-digit annual rates without any apparent increase in quality,” said Marie Driscoll, Adjunct Professor at Parsons The New School in an interview with Retail TouchPoints. Consumers now “seek value and have been selective and choiceful in their spending across staples, discretionary and luxury products and services.”
While there are clearly challenges for the market, Levato reaffirmed that the industry needs to acknowledge the nearly three years of “relentless consumption” it has enjoyed. “During COVID, there was $3 trillion in savings that was then spent over the last couple of years in the luxury industry. There has been a bit of normalization of consumption after the acceleration post-COVID.”
Additionally, market-level shifts are changing consumer behaviors and ultimately impacting how luxury brands perform (and market in) specific territories, according to Driscoll: “As the Chinese and Russians’ impact on luxury growth diminishes, other regions are stepping up such as the Middle East, India and South America,” she said. “The luxury market is more dynamic today than during any period, with greater brand awareness and access due to technology and transparency, and at the same time growing sentiment for individual self-expression and less about logos from luxury brands.”
Luxury brands must respond to consumers’ demand for more value and more relevance in product, marketing and overall brand positioning. “Brands have to provide truly compelling product and brand messaging to convert,” Driscoll advised.
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Merging to Win
Some brands are looking to bolster their value propositions by participating in mergers and acquisitions. Experts agree that periods of uncertainty and volatility are particularly “good times” for M&A activity, especially if a company is eyeing customer acquisition and growth. In some cases, M&A can even be a source for product expansion, clearer brand differentiation and innovation.
Driscoll noted that “soundly financed” acquirers can support sustainable growth both for new brands as well as older, under-funded brands, providing the infrastructure, best practices and guidance required to mature. “Strategic acquirers such as LVMH, Kering, Estée Lauder and L’Oréal, for example, can provide a great home for burgeoning new concepts,” she said. “These larger leaders can innovate, but new brands are often found outside of these huge enterprises.”
Consolidation through mergers can help companies “make scale and grow better, because they’re diversifying the risk over different brands and steps of the value chain,” Levato said. “Usually, uncertainty is a good moment to rethink the portfolio, do M&A and rethink the business’ overarching strategy, as well.” For example, LVMH successfully acquired Los-Angeles based eyewear brand Barton Perreira in 2023 for $80 million, a strategic play to expand the luxury house’s eyewear offerings.
However, such consolidation also eliminates competitive risk, which entities like the Federal Trade Commission (FTC) believe are critical to a diverse and healthy commerce landscape for consumers. In April 2024, the Commission sued Tapestry, Inc., to block its planned acquisition of Capri Holdings Limited, a deal that would combine Tapestry’s Coach and Kate Spade brands with Capri’s Michael Kors, Versace and Jimmy Choo brands.
“If allowed, the deal would eliminate direct head-to-head competition between Tapestry’s and Capri’s brands,” the FTC stated in a press release. “It would also give Tapestry a dominant share of the ‘accessible luxury’ handbag market, a term coined by Tapestry to describe quality leather and craftsmanship handbags at an affordable price.”
Tapestry and Capri Holdings plan to oppose the lawsuit, which claims that a merger will prevent consumers from receiving the discount, pricing, product and marketing innovation that comes in a more competitive landscape. Luxury experts like Richard Kestenbaum, a Partner at Triangle Capital LLC, challenge this notion.
“You only have to walk into any handbag or department store to know that there are innumerable other choices, both more luxurious/expensive and less, than the brands owned by Coach and Tapestry,” Kestenbaum wrote in an article for Forbes. “Above all, the barriers to entry are nearly nothing. Anyone can start a handbag company in their living room and try to make a go of it.”
Leaning into Accessibility and Authenticity
The rising spending power of Gen Z is significantly impacting how luxury brands think about their go-to market plans. At the most basic level, Gen Z consumers are true digital natives, so if brands want to engage these shoppers effectively, they must use digital touch points creatively in their marketing plans.
However, if brands want to truly gain market share among this cohort, they need to think more holistically, including how they develop new product lines and even sub-brands. Despite millennials and Gen X still making up the lion’s share of luxury spending, Gen Z’s spending power is now $360 billion — up from $143 billion a mere four years ago — showing that their influence on luxury brands will only grow over the coming years.
Some brands, like Coach, see the writing on the wall. The leather goods and fashion brand developed an entirely new brand, Coachtopia, to create a sustainable fashion brand that tapped into the fun, edgy design principles that Gen Z loves. With 62% of Gen Z consumers saying they prefer to buy from sustainable brands, Coachtopia developed a scalable model for reusing leather and other materials to create standout fashion items.
“Younger shoppers are demanding value-based brands — social and environmental missions that resonate with them,” Driscoll said. “Coachtopia has done an amazing job speaking to this generation of young shoppers who care about consumerism, circularity and the environmental impact of their shopping choices. By designing products from inception with a circular mandate, Coachtopia is truly differentiating the brand and the product in the marketplace and has become a brand that younger shoppers are eagerly wearing and advocating.”
Gen Z consumers also value inclusivity and accessibility, according to Mark Pingol, SVP at data and market research company Savanta, which has inspired some brands to think about how they can broaden their appeal through more diverse product design.
In some cases, brands like Gucci have leaned heavily into informal luxury, “which marries streetwear and luxury in a way we have not seen before,” according to Pingol. Savanta’s TrendVue platform also uncovered the emergence of the “inclusive luxury” trend, which entails “creating offerings that appeal to diverse cultures, ages and body types.” For example, Driscoll lauded Miu Miu for taking a genderless approach to fashion design.
Pingol noted that this “changing social acceptability of diverse bodies” has been highly present on the catwalk, but it’s bleeding into marketing too, largely because younger consumers are looking for more diverse and authentic brand representatives. In a recent Instagram post, Outlander Magazine noted that including older models and brand sponsors has an “opposite-influence effect” for brands, indicating that “OG” actors, models and everyday people are garnering more attention and virality on social media than their younger counterparts.
Embracing the Best of Digital and Physical
The rise of Gen Z, coupled with the digital acceleration that occurred during COVID, is driving luxury brands to embrace digital engagement strategies, especially through social media.
“For the last 20 years, the luxury industry has always focused on one-way communication,” Levato explained. “One-to-many campaigns, press, runway shows — they all have no dialogue with the customer. Now, customers want to talk, not just listen and see. It’s a new way of doing marketing for them.”
But make no mistake, consumers still covet the exclusivity of visiting a Louis Vuitton or Chanel store (even reality star Bethenny Frankel was blocked from entering a Chicago Chanel store because she was dressed in sweats). And the more successful luxury brands are the ones that can balance the best of digital and physical while still maintaining a clear brand promise and points of differentiation.
“Gen Z is impacting how these brands are talking and marketing to the customer through digital touch points, but now the physical experience is so relevant as a way of building trustful relationships with customers,” Levato noted. “And Gen Z is looking for that physical interaction, for people to talk to. Stores are no longer a transactional point; they are an inspirational engagement point.”
Trends Shaping the Future of Luxury
At a time of economic uncertainty and changes within the brand landscape, experts shared the trends they believe will shape the future of luxury retail:
- “The world of artificial intelligence (AI) is reshaping every industry. Although it has not yet impacted luxury, because we know this industry is slow to adopt new technologies, there is an opportunity [for them] to unleash more creativity. AI can facilitate some table stakes activities for both creativity and the customer, helping brands better personalize the value proposition for customers and unleash their people’s time so they can think and create more.”
– Federica Levato, Senior Partner and co-author of the Worldwide Luxury Monitor, Bain & Company - “The convergence between fashion and tech will continue apace over the next 12 months and beyond. That will likely include the increased use of augmented reality (AR) to help drive digital personalization of items through virtual changing rooms. We will likely see a few more significant steps forward in the realm of wearable tech as well, which improves the experience of the wearer.”
– Mark Pingol, SVP at Savanta - “Resale continues to capture new luxury shoppers and introduce the next generation to luxury brands. Authentication is key. Luxury brands should consider if and how to participate in this growing market.”
– Marie Driscoll, Adjunct Professor at Parsons The New School
