The ground has shifted in the luxury market and it’s never going back to the way it was before. China, the once reliable growth engine for luxury brands, is all but tapped out. As a result, personal luxury goods spending, the segment of the market including fashion, jewelry and watches, posted a mere 2% growth worldwide in 2014, according to Bain and Company, and it isn’t predicted to do any better in 2015.
In the U.S., the world’s undisputed largest luxury market, the luxury brands have saturated the market with full-priced boutiques, leaving little room to grow but through outlet stores. Likewise, Neiman Marcus and Saks are closing full-priced stores and turning their focus on their outlet stores instead. Sensing opportunity, Bloomingdale’s is following suit, expanding its outlet stores.
Affluent customers are responding, since there is no reason to pay over-inflated retail prices when a trip to a growing number of outlet malls, like the recently opened Desert Hills in Riverside, Calif., gives access to luxury brands like Alexander McQueen, Armani, Fendi, Gucci, Helmut Lang, Prada, Versace, Valentino and Tods, all at a discount. It’s a race to the bottom, where luxury brands lose.
It’s no surprise that luxury brands can sell their stuff for less. After all, they have spent years creating aspiration for their brands. But aspiration alone isn’t going to cut it with the affluent customers who can actually afford to pay full price. What’s changed?
There are three undeniable trends disrupting today’s luxury market:
New customers with new values and new ways of shopping call on luxury brands to market in a brand new style. Solutions won’t be found in simply changing tactics, like opening a discount outlet store, creating a new social media initiative, hiring a younger celebrity spokesperson, redesigning the website or selling over the internet. It’s about completely reworking the strategy.
Luxury brands must fundamentally change how they position their brands, communicate with the target market and serve their customers. It all starts with putting the customer, their needs, wants, desires and values in the center, and building out from there. Rather than making their products the focus of branding, they need to make the customer the subject of the new luxury stories they tell. Luxury brands need less aspiration and more inspiration to succeed in today’s luxury market.