Despite a global economic slowdown in 2022, luxury brands had plenty of reasons to pop the champagne. With strategies rooted in experiences, excitement and escapism, mass-market brands could stand to glean a few lessons from their more exclusive peers in an increasingly tough market.
Over the past 12 months, luxury has been buoyed by a post-lockdown desire from people to “catch up” on experiences disrupted by the pandemic. An expanding Gen Z and millennial customer base, coveting Gucci loafers and Tesla Model Xs, have also helped put the fizz in revenues.
According to Bain, sales of personal luxury goods were up 15% year-over-year, while luxury automotive grew by a still positive though modest 1%. Fine dining and luxury cruise sales also increased by 11% and 325% within the same period.
Louis Vuitton owner LVMH, meanwhile, has emerged as a prominent driving force in Paris’ ascent to become Europe’s biggest stock market, knocking London off its throne. The business—which, according to Bernstein, spends around $951 million on marketing annually—posted bumper results for the year, growing revenues by 23% to $84.6 billion (€79.2 billion). Gucci’s parent company, Kering, reported a 15% rise in revenues for 2022 too, pulling in $21.7 billion (€20.3 billion).
Despite global uncertainty, a luxury renaissance is unfolding. Moving beyond the pandemic, the marketers and creatives pulling the strings are laser focused on real-life events, elevated brand experiences and using digital channels to tap into culture.
Collaborations and cultural capital
Luxury labels have leaned on celebrity partnerships to drive sales. But for Zara Ineson, executive creative director at London-based ad agency House 337, LVMH in particular has been looking to cement partnerships with a new school of tastemakers.
Indeed, Louis Vuitton has just appointed N.E.R.D. frontman Pharrell Williams as its menswear creative director, the first time a non-designer has stepped into the role. He takes over the permanent position from the late Virgil Abloh.
“His creative vision beyond fashion will undoubtedly lead Louis Vuitton toward a new and very exciting chapter,” said chairman and CEO Pietro Beccari in a statement.
Ineson points to Louis Vuitton’s recent “blockbuster” polka-dot partnership with 93-year-old Japanese artist Yayoi Kusama on a 450-piece collection as another “iconic culture-making” collaboration. Leading up to the launch, some of the world’s most famous shopping locations—including Harrod’s in London—were turned into art installations and AR experiences to promote the collection. Lifelike robotic statues of the artist featured in window displays too.
“It was a smart marketing play at a time when memorable brand experiences outweigh traditional media when it comes to driving desire and demand,” noted Ineson. “Exclusive, zeitgeist-y collaborations are nothing new for fashion, but LVMH clearly knows its audiences—and is getting it so right.”
Clément Boisseau, global chief strategy officer at BETC Paris, works with a suite of LVMH brands among other luxury clients. He noted that Chanel and Hermes also posted strong results for the most recent financial year.
“What all these brands have in common is the ability to create constant new excitement,” he said, saying this could be in-person or on platforms like TikTok and Instagram. “They’re always renewing themselves on the catwalk and collaborating with different designers, which keeps them fresh in the mind of consumers.”
Adapting to the new consumer
Boisseau and Ineson agree that luxury buyers at the higher end of the income scale—the Very Important Clients (VIC) who could ask for an entire store to be closed to simply browse through the rails—are largely immune from the cost-of-living crisis. But Boisseau noted that luxury players are increasingly accommodating Gen Z and millennial consumers with more accessible, smaller goods.
Indeed, Bain luxury goods lead Claudia D’Arpizio said the segment’s base is broadening, with some 400 million consumers in 2022 expected to expand to 500 million by 2030. By 2025, 130% of the growth of luxury personal goods will be from Gen Z.
“This market growth is driven by factors that go beyond aspiration, with consumers becoming more knowledgeable and choosier, as well as intensified competition for loyalty and advocacy,” she said.
Luxury is adapting to this by investing heavily in digital experiences that complement its physical ones. In 2022, Estée Lauder and Dolce & Gabbana invested in Metaverse Fashion Week. Tiffany & Co. recently turned its jewels into NFTs. At more than 100 years old, Italian fashion house Gucci is fast becoming one of the most popular brands on TikTok.
House 337’s Ineson said these progressive experiments are still in their infancy, but there are still lessons to glean.
“Early adopter brands enter virtual spaces more focused on building relationships with younger future consumers than on short term ROI. After all, when it comes to the future, there’s no such thing as being fashionably late.”
A luxury bubble
Boisseau observed that by its very nature, luxury is an “unapologetic” industry.
With a war raging in Ukraine, just a three-hour flight from Paris, fashion brands came under some criticism online about the dissonance between the realities faced elsewhere on the continent versus the parties, celebrations and glamour of Paris Fashion Week.
Though most high fashion brands, including LVMH Group, Burberry and Kering, have closed their stores in Russia, Boisseau said the escapism promised by brands during the seasonal event and throughout the year was perhaps part of luxury’s appeal in tough times.
“We’ve seen a spike in ‘revenge shopping’ post-Covid,” he noted, saying customers had returned to stores eager to spend after months of shopping online. “But I think there’s something deeper going on, in that luxury brands are perhaps the only positive brands left today.”
While the products might be pricey, Boisseau asserted that luxury brands offer entertainment, content and experiences for free. “This reassures people and brings joy into their lives,” he continued.
As the post-peak Covid euphoria tails off, luxury’s sticking power will be put to the test. Three years of strict lockdowns are set to lift in China, its most promising market, which could help offset the more muted growth predicted for 2023 in the US and Europe as shoppers tighten their belts further.LVMH, widely regarded as a bellwether for the wider luxury industry, said it is approaching 2023 with confidence but remaining “vigilant due to current uncertainties.”
Arnault, the world’s richest man, told investors in January: “We count on the desirability of our Maisons and the agility of our teams to further strengthen our lead in the global luxury market and support France’s prestige throughout the world.”
Marketers will be watching closely to see whether the high-cost and aspirational world of luxury can keep up its sales sheen.
