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How a looming global recession is impacting the luxury market

Despite buoyant sales stats, the luxury sector is experiencing some interesting shifts in response to the current economic uncertainty
22 November, 2022
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By Andrew Robert Bellofatto, Senior Strategist at UXUS

After suffering the worst blip in recent history, the luxury market seems to be shaping up to be more resilient than ever. Despite cautious spending habits in the tumultuous economic climate, there are more new millionaires than ever and the luxury sector is experiencing exponential growth.

According to Bain & Company, the market experienced a remarkable come-back in the first quarter of 2022, growing by 17-19% compared to the same period in 2021. Furthermore, Bain estimates it will climb from €288 to €360-380 billion by 2025, while others predict it will grow even more.

However, despite buoyant sales stats, the luxury market is experiencing some interesting shifts in response to the current economic uncertainty.

Choosing between conflicting notions of luxury

Recessions cause a noticeable tension between brands that embrace a future-forward vision of luxury which has more meaning and relevance to life today, versus brands chasing a more traditional notion of luxury that embraces the idea of investing in things and experiences that offer timelessness and security.

Chanel seems to be championing a more traditional and secure notion of luxury by keeping the same, familiar artistic vision and continuing to only offer products in stores at a very exclusive price point. Similarly, Bottega Veneta is offering free lifetime warranty on bags, reinforcing the message of investing in timeless pieces. At the other end of the spectrum is Balenciaga’s collaboration with ADIDAS, which is pushing the definition of what ‘luxury’ is and how it’s valued, a conversation that is helping the brand foster cultural relevance.

Luxury brands need to choose a side that best speaks to their core values and the values of their customers, or else create their own path. We will no doubt see this conflict between a ‘conspicuous aspirational’ consumerism versus a more conservative timelessness play out in every-day high-street brands too.

The Cultural Zeitgeist doesn't care about a recession

While certain luxury brands will tap consumer desire for security and consistency, we know that it's becoming increasingly important for brands to demonstrates cultural relevancy, especially in the luxury and fashion markets. This is something that would have previously been seen as a 'no-go’ during hard times because it appears vapid and ‘faddy’. However, today, culture is the currency and brands need to be authentically associated with the zeitgeist and current culture to have real value.

Furthermore, as luxury is all about selling an aspiration the last thing consumers will want is for luxury brands to appear nervous in the face of uncertain times. Reflecting the cultural zeitgeist will help brands display an air of confidence at this time, whether they are reflecting and animating the current mood, such as Balenciaga’s surreal cynicism about the current state of the world, or providing escapism – luxury brands need to express optimism and continue to create and connect to their consumers via cultural relevancy.

The need to manufacture scarcity

We are seeing the top luxury players continue to increase prices. This is to combat difficult financial times, of course, but industry experts are also talking about how luxury brands are losing their lustre by appeasing to the masses, resulting in the need to create a feeling of scarcity and desire. By increasing prices, they continue to push certain consumers out of buying so that luxury products maintain their exclusivity, status, and prestige.

In October, Hermès announced growth of 24% this year, having raised prices by an average of 4% and with plans to increase prices further by as much as 10% next year. Other luxury brands will surely follow. This is set to create an even more heightened sense of aspiration and exclusivity on luxury brands that might previously have felt a little more accessible to the everyday well-heeled consumer. It also creates a gap and a pathway in the market for premium and luxury brands at lower prices to elevate.

Democratising luxury brand experience

Despite the price hikes and rapidly rising exclusivity, luxury brands are also working out ways to become more democratic and keep the lower end of their customer-base engaged. This is something we were seeing even prior to the recession, but the trend is accelerating now. What this means for physical retail experiences is that there will be tiered retail strategies where the biggest spenders (VVIPS) will have different channels, such as appointment-only stores, where the mass consumer and the 'new luxury' set will have less intimate, but more expressive, retail experiences that are 'brand beacons', allowing brand fans to experience the brand even without great purchase.

The new JACQUEMUS store in Paris offers a 'brand playground' for followers and fans of the brand, including an oversized popcorn vending machine in the main store area in addition to a VIP salon for more personalised experiences. Taking experience to the next level, Gucci recently became the first luxury brand to own a store within the digital real estate platform The Sandbox to “cement its place as a first mover in the metaverse”, according to Forbes. The experimental concept store Gucci Vault Land offers a fully virtual and gameified brand experience, accessible to anyone with an internet connection.

With all this in mind, we can see that - despite a positive financial outlook - luxury brands will only continue to be resilient if they can constantly evolve and re-mould both how they communicate and the experiences they offer consumers in these rapidly changing times.

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