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Since the beginning of this year, the global luxury goods industry has shown a clear downward trend.

Judging from the financial performance of LVMH, the world's largest luxury group, after a 17% year-on-year decrease in revenue in 2020, the luxury industry rebounded quickly, with revenue increasing by 44% and 23% in 2021 and 2022 respectively. Despite the global economic turmoil in 2023, the group still achieved a 13% growth. But by 2024, this momentum may have come to an end. In the first half of this year, the group's revenue decreased by 1%.

Does this mean that the purchasing power of some wealthy people has been severely reduced?

Yan Wei, partner of Roland Berger Management Consulting, told the First Financial reporter that the luxury industry usually divides customers into two categories: one is the important customers at the top of the pyramid. It is estimated that top customers (accounting for 3%) can contribute up to 30% of the business income of a luxury company. The other is "aspirational shoppers" who are willing to buy luxury goods, but often need to save or accumulate a certain amount of money to buy them.

Under the current circumstances, it is more accurate to say that these consumers who are willing to buy luxury goods but have limited financial resources are tightening their wallets. Barsali Bhattacharyya, deputy industry director of the Economist Intelligence Unit (EIU), told Yicai Global that high inflation and high interest rates in many parts of the world, coupled with rising youth unemployment, have hurt this important luxury consumer group. “Earlier this year, the slowdown in sales in the United States by Kering and LVMH, the two largest luxury goods companies in the world, was caused by theBecause even if high-net-worth consumers continue to consume, it cannot stop the consumption of entry-level consumers from decreasing.. ” she said.

Rich people don’t buy bags anymore

Since the beginning of this year, the financial performance of luxury groups has been quite ugly. In addition to LVMH, Kering Group recently predicted that after a 42% drop in operating income in the first half of 2024, its operating income in the second half of the year will drop by 30%, and the group's stock price has been hit. In addition, Cartier and other brandsRichemont GroupSwatch Group, owner of watch brands including Richemont and Blancpain, also saw sales fall.Anglo AmericanIt also recently stated that its diamond company De Beers will further reduce production.

Bhattacharya explained that after spending on consumer goods increased in the past few years, there is a clear trend of consumers shifting their spending from goods to services. Consumers are increasingly spending on travel and leisure activities, such as many people traveling internationally to attend music or sports events, rather than on goods.

According to the latest data from Citigroup, luxury leather goods and ready-to-wear were the categories with the most significant declines in sales in the United States in July, down 19% and 15% respectively. Jewelry was more resilient, down 6.5%.

Julius Baer, ​​a Swiss bank that manages wealth for high-net-worth families, reported in June that the lifestyles and consumption habits of wealthy people are undergoing new changes. They are not getting poorer;More than 70% of high net worth individuals (HNWIs) around the world have seen their assets increase in the past 12 months. However, these people are more inclined to invest their money in experiences and services, especially in travel, dining and high-end hotels. In the Asia-Pacific region, 74% of people have increased their spending on five-star hotels and 71% have increased their spending on gourmet food.

A recent survey of a wider population by consulting firm Bain & Company and the Italian luxury goods manufacturers industry association (Altagamma) also found thatExperience-based products are more popular than tangible products. Driven by the recovery of tourism and the growing demand for immersive experiences, the hotel industry and the fine dining and high-end dining industries are all growing steadily.

The same is true for millennials and younger Generation Z, where a financial management concept called "loud budgeting" begins to prevail in 2024. This concept advocates more rational consumption, especially encouraging the use of funds in experiences that can bring long-term happiness and personal growth, such as attending concerts, workshops, exotic travel and other life-enriching activities, rather than blindly pursuing more luxury goods in the home.

On the other hand, Yan Wei believes that in the current economic environment, the consumption capacity of aspirational customers is relatively unstable, resulting in a decrease in demand for luxury goods. Therefore, brands such as Gucci and Burberry that mainly serve this group have been more affected, while brands such as Chanel and Hermès are relatively stable.

Citibank also pointed out in the study: "For low-income consumers, excess savings have been eroded with inflation. In the past few years, we have seen weak demand for luxury goods in entry-level product categories that are usually aimed at aspirational consumers, and the sharp increase in prices over the years poses a risk to sales growth."

The "Both Ends" Customer Strategy

Yan Wei said that the luxury industry has experienced rapid growth in the past few years, and the base is already quite high. With the cyclical fluctuations of the industry, there may be adjustments and declines in the near future, but this is just normal fluctuation. As long as the macroeconomic environment improves, the luxury industry is expected to usher in a new wave of growth.

However, with global economic uncertainty and the weakening purchasing power of aspirational consumers, luxury brands such as Chanel and Hermès seem to be increasingly turning their attention to those consumers who can afford it, especially the VIP (very important customer) group. One of the manifestations of this strategy is the continuous price increase of these brands.

For example, this year, Hermès announced a global price increase of 8% to 9%. Chanel Chief Financial Officer Philippe Blondiaux also said that the company would increase prices every six months to cope with currency fluctuations and inflation.PradaThe prices of handbags from brands such as Prada, Dior and Louis Vuitton have also continued to rise in recent years.

However, Yan Wei believes thatMost luxury brands will not alienate entry-level consumers by raising prices."On the one hand, the total number of consumers at the top of the pyramid has not increased significantly, and luxury brands still need to rely on aspirational customers. On the other hand, in the past few years, the price increase strategies of many brands have not been satisfactory. For example, in the long run, only a few brands (such as Chanel) have achieved relative success. Other brands, such as Gucci and Burberry, have not seen ideal price increase results and have even begun to cut prices," he said.

Yan Wei said that two trends in the luxury goods industry will become more prominent in the future. First,Brands that originally relied on the large number of consumers at the bottom of the pyramid will begin to "rationalize prices", that is, lower prices.

"The luxury industry itself is a field with a relatively fixed competitive landscape, and it will not change with the short-term strategy of a certain brand. It takes long-term accumulation, historical inheritance, endorsement, and some coincidences to form top brands such as Hermès and Chanel." Yan Wei said that the luxury market does not need too many "old money" brands, and it is precisely because these brands are rare that they can reflect their scarcity and sense of value. Therefore, the continuous price increase strategy of most brands in the future will not be applicable. On the contrary, they need to adjust prices to adapt to the market.

on the other hand,The definition of the luxury industry is gradually expanding, some "small luxury goods" are beginning to come into the sight of consumers, and many luxury companies are also adjusting their business logic.Yan Wei gave an example: "Now, many luxury companies are beginning to get involved in beauty and perfume categories. Although these products do not account for a large proportion of the business of luxury companies, they represent a new business direction that most consumers can afford."

Bain & Company's report also believes that aspirational consumers are shifting their spending to products such as cosmetics, perfumes and glasses. Federica Levato, a partner at the company, said that luxury companies are developing a "dual strategy" around top customers and small luxury goods, which has driven growth at both ends of the price spectrum.

At the same time, luxury brands are also exploring territories outside of mature markets, such as the Middle East and Southeast Asia. For example, Louis Vuitton recently opened its first restaurant in South Asia, headed by Indian celebrity chef Gaggan Anand. Some Thai celebrities have also been appointed as ambassadors for brands such as Louis Vuitton and Loewe.