Luxury might be more resilient to economic uncertainties and consumer swings than other tiers, but it’s hardly immune. In the first half of 2024, 42 percent of publicly listed luxury companies reported negative growth, with revenue dipping 0.4 percent in this period. And this current slowdown — the luxury market’s first in recent years — follows a period of double-digit annual luxury growth since 2020.
After surveying 500 C-suite executives and their direct reports from luxury brands in Europe, the Americas, Japan, India and China, the report found that luxury brands that are investing continuously and holistically in building and maintaining high desirability outperform financially. Such companies not only had a revenue growth rate 2.3 percentage points higher than their peers, but they are also projected to see an operating margin growth advantage of 6.6 percentage points over the next three years.
It’s not easy to stay on top, especially with luxury shoppers and their behaviors changing so rapidly. Companies are well aware of the struggle to achieve high desirability across all customer generations and spending tiers. In fact, only 35 percent of survey respondents were content with how their company was faring today.
Keeping up with the customer remains a major hurdle. According to the report, more than 8 in 10 (or 83 percent) of luxury executives surveyed said that customers are changing faster than businesses can adapt. Further complicating matters is the fact that luxury consumers aren’t a monolith. In fact, 82 percent said that the values and behaviors of emerging customers “frequently contract those of existing customers.”
Luxury Leaders
So, what’s a luxury brand to do?
“Reinvent the business” is the call to arms, which can be challenging for luxury legacy houses that might be more set in their ways. But luxury is at a crossroads that cannot be ignored, and a select few are proving they’ve taken the right path. Seventy-eight percent of luxury brands are at risk of falling behind, but 22 percent of “luxury leaders” are reinventing themselves by creating a self-reinforcing cycle of brand desirability, operational agility and financial growth.
Prada is one such company defying the luxury slowdown. In a first-quarter update, Prada Group reported a positive start to the year with retail sales up 18 percent year-over-year. “We continue to progress in our journey toward retail excellence, enriching our product range and driving customer engagement to nurture our brands’ desirability,” said Andrea Guerra, Prada’s chief executive officer on April’s earnings call. “While the industry is experiencing new dynamics, we retain our ambition to deliver solid, sustainable and above-market growth.”
Amal Benichou, Accenture’s global luxury lead, stressed the need for agility and resilience. “The luxury market is changing fast. Brands need to maintain their allure at this pivotal moment and that means being willing to act creatively and decisively to reinvent how the whole business operates,” she said. “Our research shows that even in times of economic uncertainty, there is growth to be had. In times like this, companies cannot afford to stay unchanged and expect to thrive in a shifting market. Instead, they must embrace a new era and commit to focusing on operational excellence as well as the core measures of their brand desirability to remain relevant.”
The report identifies four ways that the 22 percent of luxury leaders are ensuring reinvention-readiness, and how others can do the same.
First, companies must focus on the right levers of brand desirability. Nine in 10 (89 percent) of luxury brand executives agree that brand desirability remains crucial for long-term growth. Luxury brands that combine high brand desirability with high operational performance stand to gain a 2.7 percentage point revenue growth advantage — and a 7.3 point operating margin growth advantage — over the next three years compared to low-performing peers.
Second, luxury brands that want to ready themselves for reinvention must think differently about strategies and priorities. While it is important to focus on brand building and the consumer-facing aspect of the business, companies can’t ignore the importance of a seamless “back end” and supply chain – prioritizing operational excellence and seamless customer experience by modernizing the value chain, leveraging the transformational power of digitalization, and sharpening the focus on sustainability.
The report showed that 50 percent of the luxury leaders are more likely to prioritize strengthened production capacity. Additionally, luxury leaders are 68 percent more likely than peers to say they’re planning to significantly increase their investments in creating seamless experiences across all channels over the next three years.
Third, companies must build a reinvention-ready digital core. Forty percent of luxury leaders were more likely to say that technology is central to maintaining a brand desirability, and 83 percent believe that cutting-edge technologies, like generative AI, will disrupt the industry in the coming years. Companies can establish a strong digital core by integrating AI, data-driven insights and automation to streamline operations, enhance personalization and boost efficiency. All ensure agility and long-term customer loyalty in a dynamic market.
Last, to be successful, luxury companies must empower people — fostering a supportive, inclusive and innovative workplace that focuses on digital fluency, competitive compensation and continuous learning to inspire the best and brightest talent. Luxury leaders were 1.5 times as likely to strongly agree that their workplace is digitally proficient, according to the report.
The luxury market has always been a mix of art and science, but a new balancing act will be key for its rebound and the sector’s future. In this new paradigm, “art” is the desirability and intuition of what customers are looking for, while “science” is the diligent analysis of the value chain operations and a healthy bottom line.
