This week, the fashion industry took a sharp intake of breath as LVMH reported a 5 percent decline in third-quarter sales in its core fashion and leather goods division, which includes megabrands like Louis Vuitton and Dior as well as a next tier of fast-rising billion-dollar brands like Loewe and Celine.
A sharp slowdown in luxury demand has resulted in unfamiliar operational consequences after a long growth streak. Brands throughout the industry are now in cost cutting mode, reducing staff, consolidating retail operations and dialling back marketing expenses.
“For weeks, handbags have been piling up in our warehouses, without being shipped. And management is forcing us to take our vacations, right now, to reduce production,” an employee at one of Louis Vuitton’s 18 French factories told Le Monde.
Some analysts argue that this is a short-term phenomenon. The underlying drivers behind luxury’s unprecedented expansion over the last decade are not going anywhere, they say. The slowdown is simply the reflection of a perfect storm of economic and geopolitical factors. Luxury’s diversified geographies and categories mean the industry can usually balance out challenges in one market or segment with growth opportunities in another; this time it’s facing a more general downturn with nowhere to hide.
Indeed, for almost as long as I have worked in fashion, LVMH and the luxury fashion market have grown consistently. There were some very challenging periods, of course, linked to the global financial crisis in 2008 and more recently, during the Covid-19 pandemic. But LVMH, the sector bellwether, bounced back after Bear Stearns and Lehman Brothers collapsed and defied analyst expectations during Covid-19 as online sales exploded while customers were locked down at home.
But my instinct is that this crisis, while linked in part to some external factors — especially a weak Chinese economy, which has dented consumer confidence, and a pullback of aspirational customers confronted with higher cost of living — is also driven by other fundamental issues that fashion executives need to address.
Before the pandemic, customers had already begun re-prioritising their spend away from luxury products towards more experiential splurges, like travel, dining and wellness. While the pandemic put this on hold, and shoppers gorged on luxury products — from streetwear to quiet luxury — they are once again questioning the overall value proposition that luxury brands have to offer, especially when compared to the sense of fulfilment and personalisation that experiential luxuries can provide.
It’s much easier to grow a business when the entire market is growing. Now that the overall market has stalled, LVMH will have to take market share away from its competitors in order to grow.
This is a significant paradigm shift that will require luxury leaders to change their mindsets. For the most part, they have not had to navigate a shrinking market before. Some of them will privately admit that the industry has become a bit complacent. By raising prices, opening new stores, expanding production and investing in marketing and communications, they have even been able to drive growth in a buoyant, expanding market.
Not anymore. Indeed, if there is a silver lining in all of this, it’s that the current slowdown should unlock more innovation, creativity and regional customisation by brands who want to remain appealing to their customers. There are expanding markets in India, the Middle East and Southeast Asia that require more attention and care. Pricing architecture needs to be re-evaluated to draw in new customers and deliver on their expectations for value.
Luxury also needs to reorient its focus towards genuine quality and ethical craftsmanship, and away from mass-produced luxury merch fuelled by celebrity hype and marketing. The number of K-Pop or Thai stars in a show’s front row, and the amount of media attention they can generate amongst their fandoms, should not be a key performance indicator for this industry.
Based on some comments that Bernard Arnault, LVMH’s chairman and chief executive, made last week, this is something that he seems to have already grasped, even if the industry might still be catching up.
“People talk a lot about marketing, but ultimately, marketing is completely secondary. Our future customers should feel drawn to our products because of their perception of the excellence of our craftspeople, and not because we’re trying to reel them in with some classic marketing tactic based on a study of what they want,” he said at the 10th anniversary of LVMH’s Institut des Métiers d’Excellence in Paris.
The luxury market has officially entered a new era. Let the games begin.
This Weekend on The BoF Podcast
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Michelle Yeoh has captivated audiences for decades, from her iconic role in “Crouching Tiger, Hidden Dragon” to her Oscar-winning performance in “Everything Everywhere All At Once.” Over her storied career, she has consistently pushed boundaries, proving her versatility both on and off the screen, breaking paths as an Asian woman on the global stage.
Now, at the age of 62 Michelle has scored coveted global ambassador roles at not one, but two of fashion’s top luxury brands — Balenciaga and Bottega Veneta.
“Fashion has changed, and it’s not just about dressing younger people,” Yeoh says. “You have to find representation across different generations, and I think what I represent is being proud that you are different, that you are older — and there’s nothing wrong with that. Just before the Oscars a silly television commentator said, ‘You’re past your prime because you’re 50-something.’ How dare you? How dare anybody tell you what you are capable of?”
This week on The BoF Podcast, I sit down with Yeoh to discuss her winding journey to the big screen and why fashion is finally embracing older women.
Wishing you all a great weekend!
Imran Amed, Founder, CEO and Editor-in-Chief, The Business of Fashion
Here are my other top picks from our analysis on fashion, luxury and beauty:
1. Did a Blast From the Past Put Victoria’s Secret on Track for the Future? Response to the lingerie giant’s fashion show Tuesday night has been mostly positive, but its new CEO Hillary Super has her work cut out in order to steer the company toward growth again.
2. Inside Luxury’s Slowdown. Economic headwinds, high prices and a lack of novel design are all weighing on what was previously fashion’s most dynamic segment. How severe is the slowdown and how long will it last?
3. How Mytheresa Can Make Its YNAP Deal Work. The German e-tailer’s deal to acquire the London-based luxury site, and become a global luxury e-commerce giant, is only as viable as its ability to make the whole enterprise profitable. BoF unpacks what it could take to get there.
4. A Memo to Elliott Hill on His First Day at Nike. The new CEO has a monumental task ahead of him as he begins work on Nike’s turnaround strategy. Success means resetting expectations, showing evidence of meaningful innovation, recapturing the attention of sneakerheads and earning the trust of retailers.
5. Why Men’s Retail Is Booming in Manhattan. Menswear and streetwear brands are opening stores in downtown Manhattan at a moment when young consumers are changing their shopping habits and digital marketing has grown stale.
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