Motivated customers might help high-end brands prevent further market erosion
In the current market, the luxury goods sector has seen a substantial shift due to rising prices, which has sidelined approximately 50 million customers by 2024, according to Bain & Co. partner Aaron Cheris. This demand deficit has encouraged luxury brands to reconsider their strategies and target "aspirational luxury" consumers who purchase one luxury item annually and spend between $3,000 and $10,000 on fashion annually, as reported by McKinsey & Co.
One such brand adapting to this change is British luxury group Burberry. During the recent holiday shopping season, the company pivoted its focus, transforming their luxury price architecture to cater to a broader clientele. According to Burberry CEO Joshua Schulman, addressing this pricing issue by returning to more accessible product pricing "restores a price architecture" and led to increased global new customer growth and store sales growth in the Americas.
Lower-income consumers, typically those who make up the aspirational luxury market, are often the first to tighten their purse strings during financial crises. This segment, worth nearly $274 billion annually, is an essential customer base, according to McKinsey. Therefore, luxury brands should limit their premium and exclusive price escalations to avoid excluding this crucial demographic.
Smaller luxury items like fragrances, shoes, and accessories—priced between $400 and $1,000—present an excellent opportunity for luxury brands to tap into the aspirational market. By offering products in these price ranges, brands can capture the interest of consumers who might be willing to splurge on such items, as reported by Joëlle Grunberg, who leads McKinsey’s apparel, fashion, and luxury sector in North America.
Burberry focused on its leather goods and entry-level categories during this period, aiming to return to price points similar to 2022. The company also emphasized its outerwear and scarf categories, which enjoyed popularity during the holiday season, leading to an increase in brand desirability.
Despite this shift in consumer behavior, luxury giants like Louis Vuitton do not believe in establishing an entirely new line of "affordable luxury." The company's former CFO, Jean-Jacques Guiony, stated that the current situation is more demand-driven than offer-driven, suggesting that the issue lies with consumer confidence rather than product offerings.
Luxury brands are targeting two specific consumer groups to win over: young professionals with growing spending power and customers who regularly buy lower-priced luxury products but have never considered splurging on high-end items. To attract these consumers, luxury brands are focusing on enhancing the in-store shopping experience. This includes cutting down waiting times in lines, investing in coaching sales associates, and offering personalized customer experiences, as reported by Boston Consulting Group partner Jeff Lindquist.
Emphasizing value and exclusivity, providing immersive in-store experiences, offering tiered pricing, enhancing digital engagement, and implementing loyalty programs and bundling offers are all strategies luxury brands can employ to appeal to price-sensitive aspirational luxury consumers, as suggested by industry experts.
- To further capitalize on the aspirational luxury market, McKinsey suggests that luxury brands should avoid excessive price escalations, as this demographic, worth over $274 billion annually, is crucial to their business.
- Recognizing the shift in consumer behavior, Burbery strategically focused on categories like leather goods and entry-level products during the period, aiming to return to price points comparable to 2022.
- In an effort to attract price-sensitive aspiring luxury consumers, luxury brands are implementing various strategies, including enhancing the in-store shopping experience, offering tiered pricing, and increasing digital engagement, as suggested by Boston Consulting Group's Jeff Lindquist.
