Digital

Opinion: Why Will The Gap Between Luxury’s High and Low Performers Continue To Widen?

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Mario Ortelli | May 26, 2021

Gucci's Hollywood Forever Sunglasses campaign.Credit: Courtesy of Gucci

After facing one of its most turbulent years, there are encouraging signs that the luxury market is on the road to a quick recovery. But a widening gap exists between its highest performers and the lowest performers and will continue to grow. Why?

When lockdown restrictions eased in London last month, demand for luxury goods was such that there were queues of customers patiently waiting outside the city’s polished boutiques ready to spend their money on brands like Louis Vuitton, Gucci and Hermès.

The images of these customers added to the growing trend that has been seen across different geographies, channels and brands – that luxury is on track for a quick rebound. Indeed, financial results from some of luxury’s biggest players have shown that the first three months of the year have been positive, offering a hopeful glimpse that the luxury market is recovering from the shock of 2020 and the effects of the ongoing global COVID-19 pandemic.

LVMH reported revenues of €14 billion for the first quarter, up 32 percent compared to the same period a year ago, Kering posted a 25.8 percent rise in group consolidated revenue to €3.89 billion, and Hermès saw a rise of 44 percent in consolidated revenue to €2.08 billion.

The latest update from Altagamma also found that the luxury industry returned to growth in the first quarter of 2021, growing by a range of 0 to 1 percent, compared to 2019 – what the industry views as the last comparable year – and predicts that the market is on track for a recovery.

While the outlook for the luxury market remains uncertain in the coming months, one thing that has emerged from the post-pandemic landscape is the widening gap between luxury’s highest and lowest performers, and only those with a strong digital footprint, compelling storytelling and an engaged audience will emerge triumphant.

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High Performers

There are a number of factors that make a brand a high performer. Those who are at the top of mind for consumers, have a compelling product offering in “hot” categories like leather goods, jewellery or outerwear, are able to engage their customer with a strong brand story and excel in digital communication are the clear winners in a race that is becoming increasingly challenging for luxury brands.

Take brands like Gucci, for example, that are able to continuously engage its customers through digital channels, exploring and experimenting with new formats, as well as introducing new products that are meaningful to consumers, or brands like Louis Vuitton and Hermès who benefit from being a top of mind brand with iconic products that consumers are more drawn towards particularly during times of crisis when people adopt an attitude of buying less, but buying better.

These high performing brands are the ones with the ability to invest in communications and brand storytelling, in creating a memorable shopping experience with top-level service and in digital, which is becoming increasingly important to a brand’s success in today’s fast-moving landscape.

The luxury sector is expected to grow in the single digits of around 4 to 6 percent per year in the long term. The lion's share of this growth will be taken by big established brands which are able to attract the new luxury consumers who usually choose to buy the iconic products of top of mind brands for their first luxury purchases.

These brands are also able to keep and increase their desirability among the most sophisticated consumers over time, thanks to their ability to invest in product quality and innovation, state-of-the-art physical and digital distribution and marketing. The remaining part of the market will be taken by new nascent brands or promising brands that have been around for a while, but thanks to new creative directions or new investment are getting renewed traction, like Loewe or Alexander McQueen. But for low performing brands, the outlook is more challenging.

Hermès' 2021 Spring/Summer campaignCredit: Courtesy of Hermès

Low Performers

Brands in the low performing category are those who do not have a real stable of iconic products, or the funds to invest in creating the digital magic required to boost their brand relevance, or who have not been able to invest in providing top-notch services.

Over the years, these brands have lost the ability to engage the younger consumer, who are the drivers of the future growth of the luxury market, and their sceptical approach to digital has meant they have not been able to clearly communicate their brand values of superior quality or iconic nature to their customers.

In today’s climate, these low performers run the risk of failure. Particularly in an ecosystem where the big fishes will become bigger, where smaller fish are finding their niche, where there are some new species arriving but where there are also middle-sized fishes that are floundering to find their place.

It is not to say that these brands cannot turn things around. Just that it may be more difficult for low performers to achieve this. However, there is always the possibility. For low performing brands, they must really excel in their creativity or finding a niche in the market.

Moncler has shown that you can start small, and if you have a really sharp story telling and the capacity to build up iconic products and keep your consumers engaged, it is possible to build sustainable growth over the long term and become an high performing brand.

However, with a market that is driven by new consumers of luxury goods who tend to opt for iconic brands that are top of mind, I expect the divide between luxury’s high and low performers to increase. Luxury is a business in which size and ability to invest matters, as those with the best creative minds and the fire power to engage customers all over the world through digital channels are the ones that will succeed.

But for low performing brands mid-sized brands, who are limited in their ability to invest in digital, and who are not able to engage younger consumers, the most likely outcome is unfortunately, an accelerated fall.

Luxury | Opinion