The luxury industry typically performs better than other sectors during an economic downturn. However, with the current developments in the global economy and consumer spending behaviors, the question is not if but rather when the luxury industry will face the adversity headwinds.

This report assesses seven pillars of the luxury industry based on short- and long-term outlooks on price inflation, and highlights business functions that are anticipated to play an important role in combatting the economic downturn in the industry:

  • Global economy
  • Price and desire relationship
  • Devolopment of Chinese consumer behavior
  • Entry level luxury goods
  • Demand elasticity
  • Efficiency of seasonal pricing strategy
  • New consumer behavior

Key findings of the report include:

  1. The effects of global inflation shouldn't be generalized nor extrapolated within the luxury sector. Although consumers appear willing to pay increased prices for luxury goods at the moment, the dynamics of the global economy indicate that inflation will remain high although moderate. This may present new challenges for luxury brands.
  2. Price plays a different role for different consumer segments. Inelastic demand rests with selected luxury brands that hold a strong position in the economy, whose consumers are emotionally connected with the brand.
  3. The power of a high price to drive desire is decreasing as consumer behavior is shaped by trends such as sustainability and investing. Further, technology offers the consumer means and incentives to satisfy their desires in various ways, making luxury goods more and more interchangeable.
  4. The efficiency of seasonal price tactics is challenged by the quest for more efficient management of the cost of capital and environmental regulations. Luxury brands need to optimize their operations and have a better understanding of the shopping behavior of their consumers.
  5. The Chinese consumer increasingly considers price in decision making and seeks price transparency. Chinese luxury brands are on the rise as they are associated with a higher value for money. Chinese travelers typically look for tax relief, and can therefore be considered price sensitive (Voyer).
  6. Millennials' purchase power is rising, however they have been through multiple crises and now seek stability. If inflation continues, impulse purchases might decrease. While Gen Z enjoys experiences over physical things, the impact of the current crises on their purchase behavior is yet to be seen.
  7. Entry-level luxury goods should not outprice the aspirational consumer. To help make entry-level goods successful, brands need consumers that will buy and an audience that will recognize the brand. A price that is too high could make this impossible.
  8. Luxury brands can focus on:
     a. Consumer insights that support driving brand desire
     b. Pricing strategies and technologies that balance price transparency and product exclusivity across channels
     c. Product portfolio management and planning to ensure optimal performance of the capital
     d. Omni-channel solutions that make technology part of the value delivered by the luxury brand

To learn more about the findings, 'How strong is the pricing power of luxury goods' below


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