Are Luxury Brands Still Worth It?

Luxury’s results ‘superweek’ underscored just how far consumer demand has fallen. Macroeconomic gloom is part of the problem, but there may be deeper issues with big luxury’s value proposition.

There were a few bright spots: Brunello Cucinelli, Hermès and Moncler reported double-digit growth in the last quarter. And it’s clear that Gucci and Burberry, struggling to relaunch under new leadership and aesthetic directions, are saddled with specific challenges. But there is little doubt the industry is feeling the heat.

Around the world, sluggish economies have curbed new wealth creation. In Asia excluding Japan, where LVMH sales dropped 14 percent in the last quarter, economic malaise — including collapsing property values and youth unemployment — has weighed heavily on consumer confidence in the key China market.

Meanwhile, in the US, aspirational shoppers have pulled back on luxury goods amid slower economic growth. According to data released Thursday, gross domestic product grew 2.8 percent in the second quarter, up on the previous quarter, but down from the unexpectedly strong momentum seen at the end of last year. Economists say the US economy remains resilient, but lingering inflation and political instability are weakening the consumer “feel good” factor that’s vital to luxury sales.

Shifting consumer preferences, away from physical goods to experiences like travel, are also part of the equation.

But the slowdown in demand for luxury fashion may be self-inflicted, too.

Big luxury brands trade on a carefully constructed marketing image that is powered by a heady collision of heritage — soaked in old European social hierarchies — and modern celebrity culture. Key to the storytelling are artfully made claims to craftsmanship, creativity and exclusivity. But this image is fraying.

In recent years, brands have hiked prices far faster than inflation as they target wealthy clients to protect profit margins. This has not only alienated Gen-Z and middle-class customers, who are key to growth, but put pressure on luxury’s core value proposition as shoppers wonder if luxury brands are really worth it.

The sector’s price hikes haven’t come with corresponding product innovation. On the contrary, the luxury industry is currently suffering from a lack of creativity from the top, with several major fashion houses creatively rudderless or transitioning to creative directors who are less inclined to bold aesthetic bets.

In stores, brands have sought to justify soaring prices with ultra-classic styles that customers know they’ll wear a lot. But this has contributed to a pervasive sense of sameness.

At the same time, reports of diminished quality are circulating online, undermining craftsmanship claims. An Italian probe into the use of sweatshop labour has hit social media, alongside personalities like Tanner Leatherstein, who chops up luxury bags to show how much he thinks they’re actually worth.

Then, there’s the growing ubiquity of luxury brands, which undermines their sense of specialness, though as Bernstein analyst Luca Solca argues, calculating ubiquity is complicated and ubiquity risk, as measured by key styles appearing too often on the street, has grown far slower than sales volumes.

The industry needs to address rising prices. Can it also tune the other side of the value equation and re-energise belief in the creativity, craftsmanship and exclusivity factors that are so critical to desirability?

September may bring further clarity with star designer Alessandro Michele’s first show for Valentino — as well as fresh revelations from the Italian investigators looking into working conditions in luxury’s supply chain.

What do you think? What’s behind the luxury slowdown? And are luxury brands worth it?

Compiled by Yola