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This is one of the six chapters comprising the Vogue Business Index: Spring/Summer 2023 edition and should be read in conjunction with the others. Please use the table of contents below to navigate between the chapters of the Vogue Business Index: Spring/Summer 2023 edition.
Key takeaways:
- Fight hard for good staff. Many luxury brands are increasing their staff count at a fast pace, including hiring talent from the technology sector, an industry that has seen an increase in layoffs in recent years. Brands looking to recruit for new initiatives in gamified experiences, innovative digital marketing or category expansion should act now to make sure they get the best talent.
- Believe in bricks-and-mortar. The majority of brands are showing confidence in monobrand stores by increasing their retail presence worldwide. Some are even expanding exclusive spaces for private clients. Brands will need to think of strong retail concepts and experiences to make themselves stand out in increasingly crowded luxury avenues.
- Gen Z focus pays off. Miu Miu’s TikTok-ready cult products and wider focus on marketing to younger consumers have seen revenue at the brand increase by a fifth. Other brands with a Gen-Z-led strategy are also seeing sales improve. This demonstrates that there is a path to success with attention-grabbing outfits and accessories even while the “quiet luxury” trend thrives.
Louis Vuitton exerts financial power
After surpassing €20 billion in annual revenue for the first time, the lucrative might of Louis Vuitton has seen it move ahead of Chanel in the summer 2023 edition’s financial ranking. Parent company LVMH posted a 17 per cent rise in takings for 2022, a growth rate that was in line with Chanel, which announced revenues of €16 billion over the same period.
Lockdowns in China led to a loss in momentum for many brands in Q4, but on the whole, 2022 was a positive year for luxury. The average profit margin for Index brands was 17 per cent, up from 14 per cent in 2021. LVMH also became the first European company to receive a $500 billion market valuation in April.
Louis Vuitton delivered a massive $39.4 million in average revenue per store across its monobrand stores worldwide. Only Chanel recorded a higher figure ($54.2 million). The average revenue per store figure across all luxury brands was $7.9 million.
Revenue per store is one of the data points that can be used as a measure of profitability across all brands. High-end names tend to score strongest, but the rapid expansion and popularity of Supreme means the streetwear label, approaching its 40th birthday year, is reaching comparable revenue per store numbers. Parent company VF Corp will need to rely more on the engine of Supreme as it attempts to right a recent slide in revenues.
Chanel’s performance remains impressive in its competitiveness, given it avoids financial levers that most of its rivals now use to great benefit, including a menswear segment and online sales. This is unlikely to change in the near future, CEO Leena Nair told Vogue Business in May.
Louis Vuitton, on the other hand, is set to lean even more into the high demand for menswear with the launch of the first collection by new men’s creative director Pharrell Williams in June. Recent Vogue Business reporting suggests that a new breed of young menswear consumers is now looking for high-quality basics rather than logo-driven streetwear.
Pace of hiring increases
Rosy financial performances have led to many luxury brands increasing staff numbers. The average headcount at luxury brands has gone up by 7 per cent since the summer 2022 edition of the Index, with some brands recording double-digit increases in workforce numbers. In all, over two-thirds (68 per cent) of brands hired more people than they did last year.
Part of this drive includes additional sales staff to fill rising store numbers, but there is some evidence that luxury brands are hiring from the tech sector as they diversify their marketing and product offerings.
The innovation, digital and omnichannel chapters of this edition of the Vogue Business Index demonstrate how brands are expanding into the metaverse, making games and utilising AI to power up clienteling. All of this requires specialist skills that are not traditionally found in the fashion industry.
This is not just a question of software, but potentially hardware too. Louis Vuitton received over 600,000 Instagram likes for a post about the latest iteration of its Horizon earphones. Forty-four per cent of luxury consumers think that brands expanding into other product categories is a cause for excitement. That means they are more enthusiastic about category expansion than they are about luxury rental, cross-brand product collaborations and digital fashion.
Focus on direct sales
The average level of wholesale exposure at luxury brands has remained relatively stable since last year. Luxury brands typically make 68 per cent of revenue from direct channels, including bricks-and-mortar stores and own-brand digital sales, with 29 per cent coming from wholesale partnerships.
Some accessible luxury brands, such as those owned by Tapestry and Capri Holdings, have struggled with wholesale revenue of late, reflecting weakening demand for the multi-brand retail partners that stock these brands as inflationary pressures take hold. However, there are some signs that wholesale demand in China, particularly for European brands, is once again increasing.
Despite wholesale potential, many brands are targeting more direct sales in the future. Over two-thirds (68 per cent) increased their store count over the past year. OTB brands Maison Margiela and Marni had the biggest increases, reflecting their parent company’s strategy of focusing on direct-to-consumer sales, which currently make up 47 per cent of OTB’s business. Dior also reported a sizable increase in store count.
In all, there was a net increase of 330 stores across all Index brands, indicating luxury’s renewed strength as international travel reopens and the promising trajectories of multiple economies — especially India and southeast Asian countries such as Vietnam. Rents have also softened in several major luxury capitals, particularly in Europe, meaning plenty of new opportunities in traditional markets, too.
Sixteen per cent of luxury shoppers say they discover new products from brands at monobrand stores, which is ahead of shopping malls (12 per cent), but behind online multi-brand retailers (20 per cent). Forty-two per cent do the majority of their shopping in-store rather than online, while 77 per cent choose brick-and-mortar destinations for at least half of their luxury purchases.
Gucci is opening “salons” for high-spending private clients only, where the cheapest items will cost $40,000. This is something that other leading brands, including Chanel, Dior and Louis Vuitton, already do, demonstrating the huge benefits of investing in special treatment for loyal and frequent customers. Late last year, online retailer Farfetch gave all of its top-tier spenders access to its Fashion Concierge service via a new mobile programme on the Farfetch app. The programme will help these shoppers source hard-to-find luxury items from across the globe.
Demand swings from US to China
Luxury stocks fell $30 billion in one day in May as fears grew around a slowdown in spending in the US. Some of this might be belt-tightening, but it also might represent a shift away from spending on luxury goods towards international travel, according to research from Deloitte, now that it has become easier again since pandemic restrictions have eased.
Although this may present a challenge for luxury brands, it would likely be tempered by a return to high levels of consumer spending in China. The trends suggested by 2023 results so far have been very positive, with Tapestry reporting 20 per cent growth in the country in its fiscal third quarter. A Vogue Business survey conducted in April in partnership with Barclays Research on Chinese luxury consumers showed that the appetite for luxury spending was high, with Louis Vuitton, Dior, Chanel and Gucci standing to gain the most. One dark spot that might inhibit some of these more positive indicators could be the new surge of Covid cases recently reported in the country.
Two-thirds (66 per cent) of Chinese luxury consumers say they would not spend less on luxury fashion if prices increase in the coming year. Of the countries surveyed, only Japan has an equally price-resilient group of high-end shoppers, though the US (65 per cent) comes close behind. Brands will be hoping that means that any American shoppers cutting back on luxury due to the rising cost of living have already done so.
Consumers in China say that Loewe, Dior, Louis Vuitton, Chanel and Gucci are the brands they are most interested in buying, meaning they could all be winners from a boost in luxury shopping sales in the country. Meanwhile, those most likely to resist a slowdown in spending in the US due to sustained levels of purchase intent are Louis Vuitton, Saint Laurent, Chanel, Tom Ford and Dior.
The Asia-Pacific region is typically more important to brands than the Americas, thanks mainly to China but also to other high-spending countries, including Japan and South Korea. The typical luxury brand in the Index derives 35 per cent of its revenues from Asia-Pacific, bar Bosideng, a native Chinese brand, which sees virtually all of its revenue come from China.
Case study: Miu Miu wins by targeting Gen Z
Youth-focused Miu Miu had a stellar 2022. The brand created multiple viral moments in attention-grabbing runway shows, such as the micro skirt from its SS22 collection (actors Zendaya and Nicole Kidman and model Hayley Bieber were all later seen in one). Yet, it also managed to leverage interest in these TikTok-friendly outfits by delivering products that consumers not only wanted to share online but also buy. Its ballet flats from the AW22 show were named product of the year by global shopping platform Lyst, which also bestowed Miu Miu with the brand of the year award.
Sales at Miu Miu increased by 20 per cent in 2022, just behind sister brand Prada’s 25 per cent increase. These strong results at group level helped elevate Miu Miu’s position in the rankings, but the brand’s revenue per store score remains a weak point, with Prada Group CEO Andrea Guerra recently saying, “If I had one mission for this year, it is store productivity.”
Directing marketing at younger consumers is likely to be a successful strategy for a number of other brands. Coach and Hugo Boss, who have done the same in recent years, have both had very solid starts to 2023 (though this period is not yet reflected in these rankings).
Miu Miu is, unsurprisingly, one of the brands that has a higher purchase intention among 18 to 34-year-olds than it does among all other luxury consumers. Other brands that are currently more popular with the youngest age bracket surveyed include Versace, Rick Owens and Loewe.
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