Is 2024 the time for the fashion industry to press restart?
Waves in fashion resurface issues and opportunities alike.
This article was originally written by Demi Karanikolaou in Greek for Harper’s Bazaar Greece. You can find it here.
The business of fashion is full of surprises, and as seasons change, so do market conditions. Only a year ago, luxury brands seemed to be defying everything and performing record-level sales despite high inflation, at a time when many other industries were struggling. However, 2024 has seen a complete reversal of that trend, with the long queues outside luxury boutiques disappearing, overconsumption losing its trendy appeal, and an overall feeling of consumer distaste towards shopping growing. Numbers tell a story: the slowing demand for luxury goods has already caused the golden business executives of the industry to lose 24 billion dollars, while the S&P 500 Textiles Apparel & Luxury Goods Industry Index has slumped almost 30% year to date.
Current state of the sector
An overview of the current state clearly points to a sector-wide downturn with declining profits and stock prices. Indeed, second-quarter earnings calls brought disappointing news for the luxury fashion market, which has been heavily impacted by economic uncertainty and declining sales in China. First came the results from Burberry, which showcased that the British brand continued to struggle, with sales slumping by -22% in the second quarter. As a result, its share price also plunged dramatically. Following that, Richemont reported sales down -1%, with a staggering -27% drop in China sales this year alone. Kering, owner of Gucci and Saint Laurent, saw their sales falling -11%, with Gucci alone seeing sales down -20%. Things were not easy even for industry leader LVMH (Dior, Louis Vuitton, etc.), who waved goodbye to star results and saw -1% in sales during the first half of 2024, causing its shares to drop -7% YoY. Hugo Boss and the Swatch group also reported poor performance and issued warnings for investors.
If one thing is becoming clear, it is that aspirational brands have been hit harder compared to the ultra-luxury ones. While brands like Balenciaga rely heavily on middle-class and aspirational consumers, ultra-luxury does not. These brands, with unapproachable price points and heritage narratives, rely on their uber-wealthy clientele, which is less impacted by changes to the economy. Indeed, the Hermes group reported first-half sales of +12% YoY. Moncler, Bottega Veneta, and Brunello Cucinelli also reported positive results. Being a private company, Chanel did not report earnings, but it is widely understood that the French conglomerate is quite profitable.
Economic turmoil and change of consumer behaviour
One of the main reasons why luxury shopping has slowed down is the political instability and continuous inflation seen on a global scale. At the beginning of the inflation period, some executives thought that luxury would be untouched due to the “feel-good” effect it produces. However, the massive effects of the fiscal crisis and growing societal inequality have eventually affected the very important segment of aspirational customers that were a big part of the luxury goods market. According to a McKinsey report, consumers who spend a moderate amount generate half of the total luxury brand revenue across seven countries, a significant $274B a year on fashion.
In addition to high inflation, we see consumer habits drastically changing. Many openly express their distaste for the continuous price increases that the luxury industry has seen on a massive scale since the pandemic. Heritage, craftsmanship, creativity, and celebrity endorsement have long been the justification for those increases by the big European luxury brands, who carefully build their exclusive marketing image. However, luxury fashion has begun to lose its lustre due to its commonality on social media and the constant scandals that have come to the surface, from Balenciaga’s advertisement campaign to the Italian luxury supplier factory scandals.
2016-era notions of buying “luxury as an investment” preached by YouTubers are on their way out, and more people than ever before say they would feel comfortable wearing lesser-known brands or well-made logo-free garments, influenced by the trend of “quiet luxury.” Consumers aspire to buy mindfully priced, good-quality mid-range items like Polene, and “Only poor people buy luxury” videos have started to become popular on YouTube and social media. TikTok has also popularised fake goods/imitation luxury products, mainly through the Chinese site DH Gate. Is this Gen Z’s revenge on the industry? As authentic luxury items become increasingly expensive and unattainable for most, fewer people aspire to even save and buy them. Already, a new trend on social media urges viewers to “de-influence” from overconsumption by showcasing influencers purging their luxury closets or showcasing a simpler life. Indeed, many Gen Z luxury consumers say they value experiences more than products. A YouTube comment reads, “Advertising sucks us into thinking our lives will be better with more bags, yet it’s actually worse because we’re broke!” while another states, “I think I’m done with purchasing luxury. It’s an illusion. A game. I don’t want to play anymore.”
Change of winds in China
It is widely understood that in the last few years, China has single-handedly carried the weight of luxury business expansion, from 2008 to 2014, when luxury goods consumption doubled, to last year, when the country was responsible for almost 16% of global luxury spending. However, Chinese consumers are now facing a different reality, with economic turmoil, negative growth estimates, an ageing population, and fewer exports than in previous years. As Jing Zhang, Editor-in-Chief of the magazine “Jing Daily,” mentioned to us exclusively: "China's luxury spending has slowed post-pandemic due to factors like local property developer giant Evergrande going bankrupt, slower economic rebound after the pandemic years, lack of consumer confidence, and rising joblessness among the younger generations. China's middle class and aspirational shoppers face uncertainty for the future. Post-2020, the guarantee of every year being better than the last economically ceased to be an expectation, and without this confidence, people are less likely to spend on luxury and non-necessities." Last November alone during the 11/11 shopping festival of China, luxury maisons like Burberry saw record returns and exchanges rise to around 50%, putting immense pressure on e-commerce. In times of economic uncertainty, nations also start to look inward and take pride in their national identity. Indeed, young Chinese brands have started to gain market share, leveraging the diminishing excitement that young consumers have for Western brands.
New strategies on stage
Facing all these challenges, luxury brands have deployed a number of new strategies to face the storms ahead. Rethinking short-term needs seems to be a very impactful one. A prime example is luxury jeweller De Beers, which has decided to slow down its mining production plans for this year due to slower diamond demand and declining sales in 2024. De Beers’ sales volume slid 50% year on year to 4.9 million carats in the first three months of 2024. In fact, De Beers' parent company, the Anglo-American group, has warned that it plans to completely sell the De Beers diamond division due to lower spending by Chinese consumers. De Beers brought in just $72 million last year versus the usual $500 million-$1.5 billion of previous years.
Rethinking pricing is also a top priority for many brands at the moment. Following the lead of most other luxury brands, French maison Saint Laurent has aggressively raised its prices in the last few years. However, now customers are claiming to have caught a new pricing strategy, where a few of its classic leather goods have been silently priced down, giving new customers an unspoken discount without making it public. The alleged decrease is rather significant, with some prices dropping from $50-$300. Other brands follow a different path, silently introducing new items to their collections that are more affordable than an equivalent item produced last year. This way, no product is officially “discounted,” something that could hurt the perception of an ultra-luxury brand.
However, if everything else fails, heavy discounting is a necessity. Just last month, for example, Selfridges in London offered a Maison Margiela bag for sale for £200, a far cry from the £1,473 it originally retailed for. On the other side of the world, Chinese retailers of luxury brands also marked down products during the same period, including brands such as Marc Jacobs, by more than 50% to fight the diminishing consumer appetite in China. On a positive note, sales in Japan are rising due to the weak local currency. As a result, luxury brands are now focusing again on the country to offset their other global losses.
Drastic measures
When all other strategies fail, it is time for more drastic measures. The industry has seen a parade of incoming and outgoing executives in the last year, from CEOs to Creative Directors or CMOs. Prime example, Burberry recently announced in a flash move that previous CEO Jonathan Akeroyd would exit. Joshua Schulman, a more commercially driven CEO with experience from Michael Kors and Coach, took his position. The fate of the Creative Director of the British house, Daniel Lee, also remains uncertain, as his vision is not getting any buzz from consumers. Despite announcing great sales results for 2023, French Couture maison Chanel also announced in June that its Creative Director, Virginie Viard, would exit the brand, with many believing that her collections were not receiving the strong customer rapport needed in a tough global economic stage.
However, Chanel is overall in a comfortable position. Many brands strategize on focusing entirely on the upper elite of consumers. Heritage brands such as Hermes have obviously always catered to that, however, we also see younger brands, such as “The Row” or Loro Piana, aspiring to do the same. As such, it would not be surprising if more brands, for example Prada or Alaïa, slowly developed similar strategies.
Future of the industry
It is particularly interesting to see how the different players within the luxury space navigate times of uncertainty. This is not the first time, and it will surely not be the last, especially with the rise of Artificial Intelligence and various other technologies. Luxury mega brands have always found ways to bounce back and reconnect with people. Whether that will be by adding some different value to enrich current offerings or by practising pricing sensibility, only time will tell. Looking at the constant turnaround of fashion products, the earnings calls, and sales figures, one has to wonder if the corporate nature of fashion actually serves its ethos. Perhaps we do need fewer products but ones that feel more exclusive, well-made, and ethical. The rest will take its course. Luxury is, and will always be, part of human history.