Luxury brands have been considered immune to the ebb and flow of the economy for a long time. Thanks to an affluent customer base and the strong emotional draw of their products, luxury brands have historically demonstrated a resilience to economic downturns. Their customers also tend to maintain their purchasing habits regardless of economic recessions, as these products are ultimately seen as a way to maintain social prestige amid financial downturns.
At first glance, it would appear that luxury brands have nothing to worry about regardless of how the economy is faring as a whole. However, is that really the case?
From the core standby VMH (which owns Dior, Louis Vuitton, Fendi, and other brands) to newcomer Farfetch, luxury brands might not be as insulated as one may think.
Not as recession-resistant
Luxury brands that are not proactive about cultivating resilience during times of economic downturn may be blindsided by the changing of spending habits of even their most prominent customers. During the Great Recession of 2008 to 2009, the market for luxury goods lost 9% of its overall value.
The European debt crisis of 2012 also stalled growth and harmed sales. In some cases, it trimmed up to 25% off of luxury brands’ usual sales figures. The COVID-19 pandemic also caused a drop in luxury sales, including a decline in apparel and watches.
Since then, luxury brands have bounced back following their usual historical patterns of recovery. From a market value of $305 billion in 2021, luxury goods companies were up to $347 billion by 2022. However, these brands cannot afford to forsake being proactive in favor of taking the idea that business will always resume for granted.
Who is buying these products?
To make a luxury brand more recession-proof, it is necessary to revisit the customer base. Who is buying the products, and what is their purchasing action?
It’s easy to see how, when, and where purchases are made. It is far more challenging to evaluate the steps a buyer takes to reach the point of sale. However, understanding this journey is crucial for every brand, especially for luxury brands, as the journey from decision to purchase tends to be longer. This is why it is essential for brands to invest in data analytics technology that provides a picture of the consumer’s touchpoints.
As brands begin to understand their customers’ purchasing paths, they will find that the brand will undoubtedly boast many wealthy individuals among its demographics. They will also find that there is a proportion of aspirational shoppers who make only a few purchases a year, typically lesser-priced goods like accessories.
Grabbing return shoppers
Both affluent and aspirational shoppers use digital channels for engagement with luxury brands. By capturing this interaction, brands can implement buyer-centric campaigns that cater to the needs of both segments.
However, the same strategies won’t work for both segments. Each personalization is necessary, particularly for affluent customers that expect exclusivity.
To woo big spenders, brands need to cater to the desire for status and exclusivity. This could be done by offering exclusive products not available to the general public, or by providing complimentary experiences or calls to offer personalized assistance.
Other strategies that can make a brand recession-proof include aligning the company’s mission and culture with shoppers’ values, focusing on the diversification of product offerings, and reducing the appeal of secondhand markets by offering loyalty programs.
It is not a question of if there will be another major economic downturn, but when. Because of this, luxury brands cannot assume their high-wealth customers will enable their businesses to continue thriving. Even for a well-established brand with a prestigious identity and presence, innovation and change management are not just essential, but crucial to recession-proofing a brand.
