Once upon a time, luxury was the symbol of exclusivity, an expensive proposition for the select few. For decades, there were a few luxury brands, mainly of European origin, that had the rights on exclusivity. Leading global luxury brands like Hermès, Chanel, Louis Vuitton and Dior maintained a tight grip on retail operations, mainly through their own outlets which allowed them to avoid discounts and fully control their brand image. The marketing mantra for this upper-most echelon of brands was they were never on discount. Of course these brands held the much-awaited sales a couple of times a year to clear stock and move in with the next season’s collections, tantalizing and teasing those who couldn’t afford them otherwise.
However, times have changed. Europe is no longer the only region producing all things luxury. International brands from Japan, the United States and other parts of the world have entered the market. Making inroads into this sector are bridge brands that have positioned themselves as affordable luxury. In this mix, e-commerce made its presence felt, the preferred shopping platform for the younger millennials and Gen Z consumers, hungry for luxury experiences. This dynamic caught the iconic luxury brands off-guard and they scrambled into competitive mode, including discounts, coupons and online loyalty points.
Elevated image dresses down to gain more sales
Last week, while studying the performance of luxury brands during the most popular buying season across most parts of the world, Wall Street Journal stated that the indications are clear – luxury brands are reaching out to a customer base that was not necessarily on their radar.
It seems that contrary to many marketing gurus pronouncing the luxury sector as recession-proof, many luxury brands are not being able to move their inventory at a desired rate and have started turning to what they term as inclusivity through even discount channels that are anything but prestigious. Early holiday shopping season discounts from high-end fashion retailers like Bergdorf Goodman of New York raised concern that an underwhelming performance leading up to Christmas could lead to inventory stockpiling, potentially dragging labels into a discounting spiral that would cheapen their image.
Luxonomy, an online site dedicated to the study of the sector has recently stated that pricing strategy is a powerful tool that should be considered, while going after the bigger consumer base for inventory clearance. Luxury brands offer a perceived value of excellence and the premium association may run the risk of value erosion when discounting happens. Additionally, the high-profit margin will also drop with such tactical selling. End of the day, all things luxury are purchased based on emotional triggers rather than practical requirements.
Embracing artificial intelligence to manage inventory
Analysts say fashion houses are overall much better equipped than during the crisis of 2008 and 2009, when the spending slowdown was sudden. On the subject of direct-to-consumer sales by high-end labels in the personal luxury goods market, according to a Bain report, figures have increased to 52 per cent in 2023 compared to 40 per cent in 2019. Many larger and legacy brands are actively working with artificial intelligence to not only do a more precise sales forecast and thereby adjust production, but also interpret trends to fine-tune seasonal collections and classic portfolios associated with their labels. The report also states that technology is playing a crucial role to avoid overstock issues as AI-powered tools are adept at examining macro indicators such as historical sales of similar products and trends scraping on social networks as variables.
It certainly looks that luxury brands are dealing with a different set of perceptions and values that younger consumers have inculcated through their generational priorities and are carefully treading water to retain their exclusivity as they broaden their customer base.
