Why future-facing luxury brands must favor excellence over perfection
What does it mean to be excellent, not perfect, in 2024, and why should luxury brands weave the answer into their strategy? ...
2024 trends
Navigating luxury’s rollercoaster ride into 2024
Global trends
What will 2024 bring for you and your business? IMD faculty and other experts offer their predictions for the year ahead.
Luxury has a lot to consider in the coming year, which is expected to mark a return to more stabilized levels of growth. At a time when the outlook is more challenging, and as customers become more discerning about where, how, and why they spend, luxury brands must ensure they are agile and flexible enough to respond to the uncertainties they face.
It’s been a rollercoaster of a year for luxury companies and brands in 2023. While global uncertainty over geopolitical tensions and the macroeconomic outlook have continued to doggedly persist throughout the year, the luxury market has demonstrated its astounding resilience, and, to its consumers, is more desirable than ever.
One only needs to look at the latest financial results reported by companies like LVMH, Hermès, and Prada to see how consumer interest in their products continues to reap rewards. LVMH posted organic revenue growth of 14% for the first nine months of 2023 compared to the same period in 2022. Likewise, Hermès reported a 16% rise in quarterly sales.
The long-term fundamentals for growth in the luxury market appear robust. The latest findings from Bain & Company and Altagamma project that the global luxury market will reach €1.5tn in 2023, an 8-10% rise compared to 2022, setting yet another record for the industry and demonstrating that demand is greater than ever.
But as the headwinds persist, the performance of the market, particularly personal luxury goods, is expected to soften, achieving low to mid-single-digit growth over 2023’s results.
Nonetheless, those who have won have won big, thanks to the huge investments they’ve been able to make; staging star-studded shows around the world or focusing on creating ‘iconic’ or ‘hero’ products that earn them the bragging rights of being featured as one of the “hottest” brands in fashion, as detailed in Lyst’s quarterly index. In the third quarter, the top 10 brands were as follows: Miu Miu, Loewe and Prada, Bottega Veneta, Versace, Saint Laurent, Moncler, Valentino, Jacquemus, and Burberry.
Each featured brand tapped into the current trends of what we are seeing today in luxury – whether that’s creating highly desirable products, recrafting updated and more modern narratives around heritage, or devising a unique point of view in brand storytelling, as seen with Jacquemus, whose viral marketing campaigns included a giant, blow-up virtual version of its Le Bambino bag floating in the sea, causing searches for the brand to increase by 17%.
With these factors in mind, we take a look at what we can expect to affect the luxury market in 2024 and beyond, from the geographical shift of customers in global markets, the climate emergency and the need to act, and the rapid adoption of artificial intelligence and its implications for luxury brands.
Tapping into the next market frontiers
With luxury’s global retail sales growth forecast to slow down between 3-5% next year, executives polled in The State of Fashion 2024, an annual report jointly published by The Business of Fashion and McKinsey & Company, say they believe the Middle East (51%), India (39%), and Asia Pacific (34%) with the continuing expansion of Thailand, Indonesia, Malaysia, the Philippines, and South Korea show the most promise for 2024.
These figures indicate a sharp change in interest by executives away from regions and countries like North America and China, two of the strongest engines of luxury growth over the past few years, particularly after the COVID-19 pandemic.
While dogged inflation is expected to crimp the spending power of many households, consumer confidence hit a four-year high in India in September 2023, potentially offering some comfort. India-based executives also appear to be more optimistic than their Western peers, according to McKinsey’s Global Economic Intelligence survey.
Doubling down, not going into reverse, to deal with the climate emergency
In December 2023, almost 200 countries signed a compromise agreement to transition from fossil fuels at the UN-COP28 Climate Summit, after what is most likely the hottest year on record. And while some luxury brands are making efforts to address their actions, what remains essential is for companies to use sustainability as a genuine driver of decision-making.
Take Kering, for example. The French luxury group put sustainability at the core of its strategy 15 years ago – long before any reporting on the topic was mandatory – when its Chairman and CEO decided that sustainability was not only a moral imperative, but also made good business sense.
Kering sustainability targets use a pioneering tool that enables them to measure carbon emissions, air and water pollution, biodiversity, and waste production that goes beyond mandatory reporting and encompasses their whole supply chain, with transparent profit and loss (EP&L). In 2023, Chloé, a Richemont Maison, followed suit by creating a Social P&L (SP&L) that the brand made available for all to use.
“From IWC’s campaign for the reintroduction of The Ingenieur, a nostalgic throwback to the 70s using AI-generated images created with Midjourney, to the fake imagery featuring the Pope in a white puffy Balenciaga jacket, the opportunities and pitfalls of using AI were captured on both ends of the spectrum.”
While steps like integrating disruptive technologies into your sustainability strategy and fostering collaboration to drive growth and boost brand values in the context of climate change can help businesses drive change forward, the reality is that companies need to engage in more profound positive transformation.
For them to create real impact, they must embed sustainability into their business, from embracing practices and circular business models to trying to reduce production and even consumption. This means transformation on a global scale, with a genuine change of culture from the way the business is conducted to the way it is operated.
The informal noise we get from brands is that owners’ moods are shifting away from more sustainability. The disparaging comments by Miss Tweed on Chloé’s CEO’s departure in December are a symptom. If that was confirmed, this shift would no doubt haunt luxury brands in the near future.
Strategizing effectively about Gen AI
Artificial intelligence seemingly permeated every major conversation last year; interest in the technology reached fever pitch when OpenAI released its third version of ChatGPT to the public at the end of 2022.
From IWC’s campaign for the reintroduction of The Ingenieur, a nostalgic throwback to the 70s using AI-generated images created with Midjourney to the fake imagery featuring the Pope in a white puffy Balenciaga jacket, the opportunities and pitfalls of using AI were captured on both ends of the spectrum. Yet its momentum shows no signs of slowing.
While the creative possibilities draw the most attention, the capabilities of generative AI present a more interesting solution for luxury companies to integrate into the business, perhaps already for content creation (text, images, or other media), but more importantly to strengthen storytelling via AI-powered chatbots and virtual assistants, and to drive internal productivity by using the summary power of the technology.
This means that using generative AI could help your employees be more productive and efficient by helping to automate processes that take a lot of time and effort to create such as draft proposals, presentations, text summarizations, or writing programming code.
By embedding AI into your daily work and using it for real solutions in your business that have a tangible impact, luxury companies can transform how they work and operate in a meaningful way.
Long-term considerations
All things considered, the global outlook poses more dark clouds on the horizon for luxury.
Yet, those in the industry remain confident in its long-term fundamentals for growth. It was, after all, one of the fastest sectors to recover from the pandemic. They must work at building a resilient and agile organizational culture within their business, embracing new ways of operating – and new technologies – and ensuring they view sustainability as a genuine filter for their decision-making.
They will also need to work harder at capturing the attention of both their local and global customers in the different markets they operate in, differentiating their approach towards a more personalized and curated offering that includes money-can’t-buy experiences to inspire brand loyalty amongst their more affluent customers, who will continue to spend even in challenging times.
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