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Key takeaways:
- Purchase intent is still there. Consumers still want to buy luxury even if they currently don’t feel like they have the means to do so. That means brands, especially those currently under relaunch, shouldn’t read too much into the performance of current collections. The ideas may be great, even if the market is not yet ready.
- Is luxury worth it? High-end shoppers are increasingly sceptical about the “value for money” offered by top luxury brands. Executives would be unwise to view this as sour grapes from aspirational consumers who no longer feel they can afford high-end clothing. If consumers take longer to get a foothold in the luxury sector through aspirational brands, it may mean a longer delay before they build up to buying from the most expensive ones.
- Culture is king. Maintaining positive brand associations is difficult in the current market, but some brands have managed to do so. These power players typically have an ambitious marketing approach, positioning themselves as a prominent part of the cultural landscape through film, art and music partnerships.
Brand desire is up, despite a gloomy economic picture
The luxury downturn continues to disappoint leading brands as sluggish sales momentum seems to affect all, bar a select group of businesses. Discretionary spending is an increasingly low priority for many high-end customers these days, but the latest survey data shows that these consumers still have some pent-up desire to spend big on designer fashion.
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The average score for purchase intent (how likely consumers are to buy from a given luxury brand) across the Index cohort held steady at 5.8 out of 10. This was a slight decrease from 5.9 out of 10 in the H1 2024 edition but a more noticeable rise from the 5.5 score in the H2 2023 edition.
Brand awareness is another typical marker of how enthusiastic consumers are about luxury brands, and the signs there are positive too. Average unaided awareness, which measures how likely a consumer is to name any given brand in the Index when asked which luxury brands they know, stands at 11 per cent (up from 9.9 per cent in H1 2023).
Some of the biggest beneficiaries of the rise in purchase intent included Chanel (up 6.8 per cent year-on-year) and, a lot more strikingly, Gucci (up 16.8 per cent). Kering has seen sales at Gucci slump by nearly a fifth in the first half of 2024.
Under new creative director Sabato De Sarno and a refreshed executive team, Gucci has pursued an elevation strategy focusing on a more classic style as its parent company invests in renewed branding and improved in-store experiences. This has not led to an immediate financial turnaround, but enhanced purchase intent figures suggest genuine enthusiasm for the new product. For now, brands who have not wavered from a classic timeless luxury strategy such as Brunello Cucinelli and Hermès are the ones that luxury consumers have growing enthusiasm for based on actual financial results.
The steady hold in purchase intent does not necessarily mean brands have the financial levers that existed when sales growth was strong, even those currently performing well. Four in 10 (41 per cent) of luxury consumers say that increased prices would mean they would shop less for designer fashion.
Consumers’ concern about erosion of quality in top luxury brands
This enthusiasm, however, is paired with increased scepticism over the quality of the output of the luxury brands that consumers typically love the most. Since the H1 2024 edition, nine of the top 10 best performing brands on the Consumer Sentiment pillar saw their average score decline on metrics tracking brand quality. These include consumer views on whether the “cuts and fittings of the clothing” are good or if a brand “offers high-quality pieces”.
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That is despite seven of these 10 conversely seeing increases on metrics tracking positive associations with the brand, such as “always having something new” and whether a fashion house is “classic and timeless”.
Most notably, nine out of the 10 brands saw a decline on whether they offer “good value for money”. This demonstrates how jaded some high-end consumers are, temporarily at least, about the luxury brands they typically love. Other metrics that saw decreases included whether a brand offers an “exceptional in-store experience” or “products that are sustainably and ethically sourced”.
This seems to have had the biggest impact on the brands that have typically dominated the Consumer Sentiment pillar and even those that seem to be riding out the luxury downturn. Chanel’s score decreased in eight out of the 10 brand quality metrics tracked, while Loewe’s went down in nine.
One explanation for this might be that consumers are generally less enthusiastic about interacting physically with luxury brands as they cut down on spending, whether that is buying a product or going into a store to browse inventory. With less reference points, they feel less able to give an opinion on the perceived performance of the product.
It may also reveal some of the paradox of the aspirational consumer turning away from the sector. While the brands they buy may be at lower price points, their ultimate desire is, in many cases, for the traditional leading names in the luxury ecosystem. When they decide to turn away from the brands they typically buy, that sees them take a further step away from heavyweight names like Chanel and Dior.
Brand association favours those with cultural approach
While the best performers managed to hold up positive brand associations in spite of growing consumer doubts about their quality, the same was not true for the remaining 50 brands in the Index. Of these, 43 saw a decline in their average scores across all the metrics related to opinions of the brand.
The metrics where the decline was most noticeable included whether a given brand was a “positive force for change in our society” or “stands for values I support”, both of which saw a 5.3 per cent decline. The likelihood of any brand being rated the “most iconic” by consumers also declined by 4.8 per cent. Only five brands saw their score on these three metrics hold steady or increase since H1, including Saint Laurent, Dior and Hermès.
That this drop in brand associations was not true for the majority of these brands speaks to the power with which they continue to communicate and enhance their reputation as major cultural players. Saint Laurent has been heavily investing in film, with three of its productions on show at Cannes earlier this year.
Dior has cultivated a cultural reputation through years of clever curation, demonstrated by its seemingly unshakeable dominance of the Digital pillar (it has been the best digital performer in every edition since spring 2021). This was exemplified this year by its prominence in the opening ceremony for the Paris Olympics, with stars Lady Gaga, Celine Dion and Aya Nakamura all wearing Dior during their attention-grabbing performances.
Hermès, meanwhile, has done little to change its cultural importance to the luxury sector. Despite major expansion over the past few decades, its retention of waiting lists ensures demand always outstrips supply, leaving no doubt that a craftsmanship-driven model still works even during economic downturns.
Chanel’s strong consumer showing propels it upwards
One of the rare winners of the luxury slowdown appears to have been Chanel. The brand is on course to break $20 billion in sales this year, putting it within touching distance of highest revenue brand Louis Vuitton. It has demonstrated its ambition of late, buying up retail property in ultra-prime locations and with star-studded campaigns such as a short film featuring Brad Pitt and Penélope Cruz for its AW24 collection (alongside another wave of price rises).
Despite the decreases in consumer opinions of brand quality, the brand increased its scores on metrics associated with positive brand associations and purchase intent so much that its overall Consumer Sentiment score rose since the H1 2024 edition. This has allowed it to maintain its gap with Louis Vuitton, a regular challenger for its crown in the Consumer Sentiment pillar. Industry insiders will be watching keenly for the impact of its upcoming change of leadership after Virginie Viard announced her departure from the artistic director position.
On the 11 pillars tracking positive brand associations, Chanel was viewed to be the best performer on seven of them. Most notably, consumers scored Chanel 8.7 out of 10 on average for having a “rich heritage”, a score only rivalled by Hermès, which achieved 8.3 out of 10.
These two brands have distinguished themselves from other luxury names over the digital transformation era by holding steady in controversial business decisions. Hermès has shirked growth at all costs by sticking to its waiting list model, while Chanel has foregone the potential revenue benefits of fashion e-commerce by making consumers travel to stores to buy its products. This protection of brand equity over short-term revenue benefits and focus on the highest end of consumer has meant their buffers from the luxury downturn have been stronger than most other Index brands.
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