In a market grappling with economic challenges and shifting consumer demands, luxury brands face a dilemma of catering to their top clientele while reaching new audiences, according to new research by consulting firm Bain & Company.
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The global luxury market surpassed EUR1.5 trillion in 2023, fuelled by a revival in luxury travel and a robust holiday season. But the first quarter of 2024 witnessed a slowdown in most regions due to macroeconomic pressures, with Japan being the exception.
The Bain & Company Luxury Goods Worldwide Market Study, released in collaboration with Altagamma, the Italian luxury goods manufacturers’ industry association, sheds light on the shifts and strategies contributing to increased dispersion within the luxury goods industry.
Experiential offerings are beating material luxury
Bain and Altagamma’s research underscores the growing preference for experiential offerings over tangible goods.
“[…] Now is not the time for brands to rest on their laurels. As brands continue to face turbulence in the market, the winners will be those that rethink the way they craft and deliver their value propositions across multiple price points and touchpoints,” said Federica Levato, partner at Bain & Company and leader of the firm’s EMEA Luxury Goods and Fashion practice.
What is driving growth is a “dual strategy” that creates desire for brands’ top-tier clientele, while crafting “smaller luxury indulgences,” says Levato.
Experiences are offering a major boost to the segment. Hospitality, gourmet food, fine dining, and luxury cruises have witnessed consistent growth, driven by consumers’ desire for immersive experiences.
Investment-driven purchase decisions have bolstered jewellery in both the uber-luxury and entry-luxury segments, while aspirational consumers are picking out more affordable entry points such as makeup, fragrances and eyewear.
The report also identifies a slowdown in accessories, particularly in footwear.
Brands in Japan continue to reap the benefits of thriving inbound tourism as China remains under pressure
As well as Europe, Japan has experienced a surge in inbound tourism since lifting its pandemic-time borders, and not just from its strongest source market of China.
A ‘favourable’ Japanese yen, which reached its lowest level against the US dollar in over 20 years, has helped to bolster spending in the country by tourists.
Q1 sales in Japan consistently offered a bright spot for European luxury groups while the rest of APAC delivered varying degrees of success. Kering, which suffered a blow in Q1, saw a small increase in sales in Japan; LVMH, Hermès, and Prada saw a spike there in Q1.
Meanwhile in China, luxury brands have struggled in 2024 due to the revival of outbound tourism and weakening local demand caused by economic uncertainties.
The latter, according to Bain & Company, is “undermining middle-class consumer confidence” and prompting a “luxury shame” behaviour similar to what transpired during the United States’ financial crisis from 2007 to 2009.
Brands must expand their reach, catering to top clients while identifying new audiences
Generation X and Baby Boomers, who have by now accumulated significant financial cushion from economic conditions, are catching the attention of luxury brands with their increased spending, says Bain & Company.
This trend aligns with the continued growth of the top-tier consumer segment. To navigate this landscape, many brands are concentrating on their top clients with dedicated services and VIP salons while organising larger-scale events and limited-time pop-ups that cater to a wider audience.
Brands are also stretching their reach by venturing into somewhat newer territories, particularly in the realm of sports such as padel, racing, and football, to broaden their appeal across different demographics.
Loro Piana, for example, announced a new collection focused on outdoor activities, spanning jackets and other performance wear.
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“As a narrative of resurgence and resilience emerges, luxury brands must rethink the way they build their value proposition to prioritise trust and connection with consumers,” said Claudia D’Arpizio, a Bain & Company partner and leader of Bain’s global Luxury Goods and Fashion practice.
“Many are navigating a momentary crisis, driven by macroeconomic pressures and a polarised customer base. This presents a unique moment to define a new way forward for their brands, fostering a more personal connection with their customers.