Latest news with #FilippoBianchi
Forbes
14-07-2025
- Business
- Forbes
More ‘True,' Less Aspirational Luxury Is The Next Priority For Luxury Brands
TOPSHOT - A model presents a creation by Hermes for the Women Ready-to-wear Fall-Winter 2024/2025 ... More collection as part of the Paris Fashion Week, in Paris on March 2, 2024. (Photo by JULIEN DE ROSA / AFP) (Photo by JULIEN DE ROSA/AFP via Getty Images) Democratizing luxury by making it more accessible to so-called 'aspirational consumers' has been the ticket to maximize growth in the luxury market since the global recession of 2008-2009. Between 2009 and 2019, the personal luxury goods market nearly doubled in size, reaching $332 billion (€284 billion). Post-pandemic, it got another burst of growth, advancing from $342 billion (€293 billion) in 2021 to $431 billion (€369 billion) in 2023. But then it slowed to $423 billion (€364 billion) in 2024, according to Bain. The dynamic industry growth from 2009 through 2023 has come at a cost. 'In a race for scale, some of the soul of luxury was lost, as much of the industry traded exclusivity for reach, exchanging stability for volatility,' wrote BCG senior partner Filippo Bianchi in the latest BCG and Altagamma 'True-Luxury Global Consumer Insights' report. Aspirational Luxury Falls In 2025, the luxury market is looking down the barrel at its first major slowdown in 15 years, excepting the Covid years, and BCG puts much of the blame on brands' overemphasizing the aspirational consumer segment. A sizeable 35% of aspirational luxury consumers, defined as those who spend less than about $6,000 (€5,000) per year, have pulled back on luxury indulgence, diverting spending to savings and investments, wellness, second-hand luxury and trading down to more affordable fashion. 'The segment that previously fueled growth is now revealing its fragility. Around 50% of these consumers now feel financially vulnerable,' Bianchi continued. Brands that are most dependent on aspirational luxury are in the crosshairs. 'Brands with a client base comprised of more than 50% Aspirational consumers are seeing the steepest declines, underperforming sharply over the past 12 months.' While BCG doesn't name names, one doesn't have to look far to find suspects. LVMH's fashion and leather goods segment, anchored by Louis Vuitton, fell 5% in the first quarter and Kering, led by Gucci and Yves Saint Laurent, was off 14%. Polarized Results Luxury brand performance is increasingly becoming polarized, with more brands falling behind than pulling ahead. That gap will continue to widen, as Bain forecasts up to a 5% decline in the luxury market by the end of the year. Nonetheless, luxury brands continue to rely on marketing to the weakening aspirational consumers, who generated some 60% of the market's revenue in 2024, largely at the expense of alienating the most empowered consumers at the top of the luxury consumer pyramid. Those at the top spend over €5,000 on luxury per year and produce 40% of luxury market sales, according to BCG. And the very top-tier clients, defined as spending €50,000 or more annually, make up greater than half of that or 23% market share. 'To succeed in the years ahead, brands must refocus on top-tier clients and return to the fundamentals of what true luxury really means,' Bianchi advises. Brands that have stayed true to luxury fundamentals are reaping the rewards, like Brunello Cucinelli, which ended 2024 up 12%, as well as Prada (+13%), Hermès (+9%) and Richemont (+8%) in the most recent quarter. How Luxury Brands Are Failing Top-Tier Clients Based upon a survey of 7,000 worldwide luxury consumers and qualitative research with top-tier customers, BCG has identified four primary ways that brands are falling short in serving their very important customers' expectations and needs: Some 60% of luxury consumers feel overwhelmed by excessive marketing and generic mass communications. In brands' efforts to attract attention through marketing, they are attracting the wrong kind of attention: turning key clientele off and causing them to disengage. 'What they value is not outreach, but tailored interation – built around their personal context, taste and lifestyle,' BCG advises. The call is for more person-to-person clienteling, which can be aided by AI, yet AI is no substitute for the personal connection. An overwhelming 80% of luxury consumers feel alienated by overcrowded, impersonal retail environments and prefer interacting with luxury brands in exclusive, dedicated retail spaces that offer privacy, calm and high-touch service. It's hard – if not impossible – to deliver client intimacy at scale, but that is what these very important customers expect. Luxury products are most highly valued for their craftsmanship and quality, yet 89% of luxury consumers believe they are not getting it. Product excellence suffers from increased industrialization in the industry and its focus on volume production rather than on ultimate quality and value. Top-tier clients expect the brands they interact with to recognize and treat them as the very important customers they are. Some 70% believe they are not correctly identified as such across channels and regions. Much of the blame is placed on brands' CRM systems and how they are segmented and targeted. Brands need to do a better job in their data analysis to refine their segmentation models so very important customers are recognized and treated as such. Realign To Top-Tier Clients The way forward for luxury brands is to return to luxury's first principles. Unfortunately, many brands have veered from its core values in their pursuit of growth fueled by aspirational consumers. 'The luxury brands that will win in the years ahead will be those that have the courage to center their strategy around the core, delivering excellence to the clients who define what true luxury means,' Bianchi said. Luxury brands must return to what has always made luxury exceptional: personal relationships and recognition, special client experiences and ultimate quality. Bianchi concluded: 'To meet and retain top-tier clients, brands must recalibrate – not through scale, but precision; not through ubiquity, but intimacy. In doing so, they'll take a crucial step toward building a strong luxury industry by returning to what made it exceptional in the first place.' See also:
Mint
16-05-2025
- Business
- Mint
For luxury brands, there are no replacements as China and the US falter
Even though both countries have 1.4-billion strong populations, mainland China has more than 60 Louis Vuitton stores while India has only three. Designer brands' struggles in India are a reminder of just how difficult it can be to find new growth markets. That search is taking on new urgency, as the two biggest drivers of demand in the luxury goods industry, China and the U.S., are in the doldrums. Together, Chinese and American shoppers generate around half the sector's sales. But demand from Chinese consumers has been muted for four years. The country's deflating property bubble has wiped 30% off Chinese household wealth, according to Barclays Private Bank, lessening the appetite for luxury goods. U.S. luxury sales peaked in early 2022 and have tailed off since. A delicate recovery in spending seen late last year was snuffed out by the tariff war. LVMH, the world's biggest luxury-goods company by revenue, said sales in the U.S. fell 3% from a year earlier in the first quarter. Although it doesn't break out China, sales fell more than a 10th in Asia. And 2025 is shaping up to be a lost year for the luxury industry, with global sales expected to dip 2%. Brands and their shareholders got used to two decades of reliable 6% annual growth, so they are naturally eager to find the next hot market. But it will be hard for luxury companies to reduce their dependence on Chinese and American consumers, as they need such specific elements to thrive. If luxury bosses were able to build an ideal market for their products from scratch, the local economy would be growing rapidly. This creates a pool of ultrawealthy spenders. 'The ingredients [for a luxury boom] are the same every time," says Luca Solca, analyst at Bernstein. 'You have a group of top consumers getting a lot richer who are interested in separating themselves from the crowd, so they buy luxury goods." But there shouldn't be too much wealth inequality. When middle-class consumers are also getting richer, some will try to keep up with the Joneses by spending on designer goods. Top brands have a reputation for catering to the superrich, but more than 50% of global luxury sales come from hundreds of millions of middle-class shoppers who spend less than 2,000 euros a year on luxury goods, equivalent to $2,240 at current exchange rates. 'The two markets coexist in a symbiotic relationship," says Filippo Bianchi, a managing director at Boston Consulting Group. 'Spending by the wealthiest shoppers, that money is always there. But the bottom half is driven by GDP and what is happening to people's salaries." This is what made China such an amazing market for luxury goods. Between 2009 and 2019, its economy grew 8% a year on average. As China's rich got richer and its middle class swelled, both turned to Western luxury goods to signal they were moving up in the world. Back in 2000, Chinese customers generated 1% of global luxury sales, according to UBS. Today they account for around a quarter. The country also urbanized rapidly, so luxury brands were able to advertise and retail efficiently to tens of millions of city dwellers. And middle-income consumers were pressed up against the ultrarich, creating status hunger. Compare that with India, where only a third of the population lives in cities. India is the market that divides opinions the most among luxury industry analysts. It has been one of the fastest-growing economies in the world for several years, so some brands think it is only a matter of time before middle-class Indians want Chanel handbags and Cartier bracelets. But the Indian market has underperformed expectations so far. Reasons cited include a supposedly less individualistic culture and strong local clothing and jewelry brands. Today, luxury brands sell goods worth $1 billion inside India, compared with $45 billion in mainland China, says Federica Levato, a senior partner at consulting firm Bain & Company. A country's retail infrastructure can also be a deal breaker for brands. For now, luxury brands sell their goods in the lobbies of five-star hotels in India. But an area equivalent to London's Bond Street or New York's Fifth Avenue where they could open flagship stores hasn't developed yet in major cities. According to Ashok Som, co-author of 'The Road to Luxury," India's population of 1.4 billion is served by just eight luxury shopping malls. High import taxes, which add around 50% to the price of goods such as designer handbags, mean India's high-net-worth individuals do their luxury shopping abroad. Unless middle-class Indian consumers start buying luxury goods at home in big numbers, investment in high-end retail won't happen. That in turn further holds back spending. Luxury brands can try to coax more cash from local Europeans. But the region's shoppers aren't in an indulgent mood. 'The European economy has been stagnant for years versus China and the U.S.," says Bernstein's Solca. 'Consumers only buy luxury goods when they think 'I can spend a lot today because tomorrow I will be richer.'" Saudi Arabia is another market that luxury brands are watching, even though they aren't all-in yet. Half a million square meters of luxury retail space is being developed over the next decade, in a punchy bet that locals will do more luxury shopping at home rather than in London or Paris, and that there will be an influx of high-spending expats and tourists. Even if that goes according to plan, luxury sales in the Saudi market will only be the same size as Germany's, says Boston Consulting Group. With no obvious alternative to China or the U.S., brands might try to lure back middle class consumers in these markets to jump-start growth. A report from Bain shows the luxury industry has lost 50 million customers since 2022, partly because hefty price increases put their goods out of reach for aspirational customers. Today, the lowest-cost women's sneakers on Gucci's U.S. website were $790. Back in 2020, the most affordably priced pair cost $550, the Wayback Machine shows. The solution to the luxury industry's growth problem probably doesn't lie in new emerging markets. What the brands really need is a re-emergence of middle-class spending in the U.S. and China. Write to Carol Ryan at
