The Success of Luxury Brands Today

The shift in consumer demands, laws, ethical views and unforseen disease outbreaks have impacted the global luxury market greatly in the last year. In this report, we analyse the key steps luxury brands are taking to overcome these changes and stay relevant in times of crisis.

Written by Ashley LooiFebruary 26, 2020

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Introduction

Millennials are now a driving force in the luxury retail market. It is expected that the global luxury market will top USD 1.5 trillion by 2025, 50% of which will be contributed by the millennial generation.

The shift in demand of millennial consumers is causing an internal change in assortment mix to what customers want. External factors also cause change in luxury brands such as Intellectual Property (IP) protection issues and more recently, the coronavirus outbreak in China.

One defining characteristic of the millennial consumer is their increasing environmental consciousness – online searches for “sustainable fashion” have tripled between 2016 and 2019.  In reaction, luxury brands are making concerted efforts: a large number of luxury brands signed the G7 Fashion Pact to minimise the environmental impacts of fashion with Prada being the first among luxury brands to sign a sustainability deal.

Another defining feature of today’s luxury market is streetwear – a global phenomenon, the product of a cultural shift. It has worked its way into the luxury segment, where luxury streetwear has gained a fresh impetus among millennials.

An external factor that effects the performance of luxury brands is the counterfeit goods market that has been growing with the rise of e-commerce. Brands are faced with IP protection issues from products on online marketplaces and luxury resale websites.

More recently, the international luxury industry has taken a hit following the novel coronavirus outbreak in China. With Chinese buyers accounting for 35% of the market share, luxury brands must quickly adapt to the current market situation.

In this report, we analyse luxury brands to measure their success and look at ways these brands remain relevant despite the shifting consumer demand.

More than 110,000 data points were screened from March 2019 to February 2020 from online retailers across US and UK markets.

 

All data used in this report comes from products retailing online as tracked by Omnilytics, unless otherwise mentioned.

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Brand Performance Overview

Overall Performance

Balenciaga came in top, with the highest total sell-out rate of 80%, achieved with average new-in rate and above average discounting to make up for its having the narrowest assortment. Fendi, another top-performer, achieved an above average sell-out rate despite having below average newness and low discounting.

Prada and Gucci managed to uphold brand equity throughout the period. Both brands managed to drive sales at a high median price with a low percentage of discounted items.

Although Burberry had high newness, the brand failed to drive high sell-out.

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Sustainability

Sustainability is a crucial factor for customer retention and brand loyalty – 68% of consumers deem sustainability important. Additionally, sustainability initiatives which most resonate with consumers are the use of eco-friendly materials and the implementation of ethical practices.

Sustainable Materials

Luxury brands have started using a range of eco-friendly and sustainable materials in their products – such as Linen, Organic Cotton, Better Cotton, Ramie, Econyl, Lyocell and Hemp.

Linen was the most popular among sustainable materials, contributing to nearly half of the sustainable assortment. Crafted from the fibres of the flax plant, Linen was mostly found in Jackets and Shirts. Sustainable alternatives to Cotton like Organic Cotton and Better Cotton comprised 29% of sustainable materials. The bulk of Organic Cotton was found at Stella McCartney, whereas Better Cotton was mostly used by Saint Laurent and Burberry.

Stella McCartney has the widest assortment of sustainable products among the luxury brands with 300 SKUs – 31% of the sustainable assortment.

Prada, Versace and Fendi were lagging behind in the use of sustainable materials, where offerings were below 15 SKUs.

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Sustainability (cont’d)

Aside from using sustainable materials, luxury brands also implemented sustainable and ethical practices. Aside from addressing environmental concerns, these practices also refer to culture and diversity concerns.

Sustainable and Ethical Practices

One of the biggest commitments towards sustainability demonstrated by luxury brands was becoming part of the G7 Fashion Pact – signatories included Burberry, Stella McCartney, Prada, Saint Laurent, Gucci, Balenciaga and Versace.

Although Prada was behind in terms of sustainable products over the past 12 months, the brand has taken multiple actions towards sustainability in the past 6 months. Prada is leading the way by being the first luxury brand to sign a sustainability deal. The deal will allow Prada to change its interest rates annually if it achieves specific eco-friendly objectives. Additionally, Prada has agreed to diversify its workforce following the blackface controversy of 2018.

Gucci announced that it has become entirely carbon neutral by offsetting its annual greenhouse gas emissions through projects that support global forest conservation. The brand’s CEO, Marco Bizzarri, has also invited other CEOs to join the fight against climate change in the CEO Carbon Neutral Challenge.

Additionally, luxury brands have addressed ethical concerns by joining the alliance against animal cruelty through adopting fur-free policies.

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Luxury Streetwear

With the ‘hypebeast’ narrative popular with millennials, streetwear has rooted itself in the luxury segment.

The most common category in streetwear was outerwear, which accounted for 46% of the sustainable assortment. Tops and Dresses followed with 19% and 12% contribution, respectively. Luxury brands have demonstrated understanding of the streetwear market, which typically focuses on clothing above the waist.

Sneaker Culture

Sneaker culture goes hand in hand with streetwear, where the footwear is the hero of an ensemble. In response, luxury brands have turned up their sneaker game.

The number of sneakers offered by luxury brands more than doubled in the past year, an indication of luxury brands catering to the streetwear market.

The aggressive strategy to break into the sneaker market can be seen especially at Prada, Burberry and Fendi where the year-on-year growth in number of sneakers increased tremendously by more than 200%.

The frontrunners in the sneaker market were Gucci and Prada – each brand offered close to 500 SKUs each within the category.

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Luxury Streetwear (cont’d)

Luxury brands have also collaborated with well-known sportswear brands like Fila and Adidas, celebrating a real hi-lo fusion of their worlds.

Fendi x Fila

Logomania was the main highlight of the collection, which mainly featured Fendi’s “double F” logo and Fila’s signature design replaced by Fendi’s brand name. The Fendi x Fila collection successfully captured the loud nature that is defining in streetwear.

Stella McCartney x Adidas

Stella McCartney and Adidas worked together to produce a streetwear look that is both trend-led and sustainable. Using vegan leather and faux leather to craft shoes, Stella McCartney fulfilled the two major shifts in demands – sustainability and streetwear.

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IP Protection Issues

The online global counterfeit market is expected to hit USD 1.8 trillion this year. Consumers are now purchasing counterfeit goods willfully –  28% of UK consumers would buy fake goods.

The IP protection issue has become increasingly rampant with the rise of e-commerce, making it harder for luxury brands to monitor goods sold in online marketplaces. These marketplaces do not have regulations set in place to take action upon sellers that infringe IP protection laws.

Another factor contributing to the counterfeit problem is the booming second-hand luxury market where authenticity is hard to ascertain. Luxury resale sites like The RealReal have been taken to court on the premise of selling counterfeit Chanel handbags.

The negative association brought on by counterfeit goods can have an adverse effect on brand equity. Luxury brands need to protect brand equity by taking preventive measures against IP infringers.

LVMH has launched a blockchain service called Aura in partnership with ConsenSys and Microsoft. The platform seeks to serve the luxury industry with product tracking and tracing services. The technology will be used to protect creative IP and reduce advertising fraud.

Online luxury fashion retailer, Farfetch, has partnered with Facebook and other brands to launch the Libra Association, an independent blockchain-based platform. The blockchain aims to benefit the luxury segment by improving IP protection and transparency in the product lifecycle.

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Effects of Coronavirus

Sales in the luxury segment have taken a dive following the coronavirus outbreak that occurred in China early this year. Chinese consumers represent 35% of the global luxury market, which combined with travel bans and restrictions, poses a threat to the luxury market.

Luxury brands have closed dozens of stores in China due to public health concerns causing diminishing traffic numbers. Perhaps in reaction to the decline in offline sales, there has been an increase in sell-out rates of online luxury retail since the outbreak began in January. Online sell-out rates peaked the week prior to the Lunar New Year, taking a dip as the holiday drew near and news of the virus spread. Since then, sell-out rates picked up and have doubled.

With the stall in the China market for luxury goods, Gucci was quick to take action, making changes to its supply chain to adapt to the coronavirus impact. Inventory that was originally intended for China was redirected to other markets. Gucci’s quick adaptability has proven to be successful as the brand has continually performed better than other brands in the luxury segment. The way Gucci’s online performance increased at a faster rate than other luxury brands over the past 4 weeks, as seen in Chart 7, is another indication of the success of its supply chain strategy.

In the coming months, it is crucial for luxury brands to closely monitor the news surrounding the outbreak, especially considering the uncertainty of how long the outbreak will last. Luxury brands have to continue to adjust their inventory plans according to the situation. Collections at the assortment planning stage will have to be re-evaluated to account for the situation in China and potential outbreaks in other countries that will cause similar impact in sales.

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Conclusion

Main Findings

Sustainable Materials and Practices: Luxury brands have incorporated sustainable materials into their products. There are number of substitutes that can replace cotton, which is a bio-degradable, natural fibre but has negative environmental impact due to high levels of pesticides and toxic chemicals that seep into soil and water supplies. The common alternatives to cotton were Linen, Alternative Cotton and Better Cotton.

Prada has paved the way for other brands by becoming the first luxury brand to sign a sustainability deal to work towards adopting sustainable practices in its strategy. Additionally, more luxury brands are becoming fur-free to combat the issue of animal cruelty.

Rise of Luxury Streetwear: The number of sneakers offered by luxury brands increased by 150% year-on-year in the past 12 months. This is a demonstration of how luxury brands positioned themselves in the market to be seen as moving towards luxury streetwear. Brands like Prada, Burberry and Fendi saw the biggest leap in number of sneakers.

Collaborations between luxury brands and sportswear brands also indicated an understanding of the market, where the collections mainly featured Tops and Outerwear – not only staple items in streetwear, but safe shapes in terms of silhouette when these items may be reaching beyond the brands’ regular customer demographic.

Next Steps for Brands

Meeting Consumer Demand: Luxury brands continue to thrive due to their ability to meet consumer demands surrounding sustainability and luxury streetwear.

Mid-market brands can use Omnilytics’ data to observe the success of sustainable materials used by luxury brands. Furthermore, brands can draw inspiration from luxury streetwear to see the current streetwear trends.

Adapting to External Market Disruptions: The coronavirus was an unforeseen disruption in the fashion industry that has caused a major slowdown in the Chinese luxury market.

Brands need to adapt quickly to changes in the market that require immediate adjustments in strategy and assortment planning. Contingency plans must be put in place to reallocate resources to other regions. Brands also need to take into consideration that the effects of the coronavirus could go on for the next few months.

With the increasing sell-out rates for online retailers following the outbreak, brands should consider switching to a more online heavy strategy to overcome the lack of customer traffic in malls and stores.

Additionally, brands that face IP protection issues can make use of the advancements in artificial intelligence to safeguard against counterfeit goods.

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Meet the Author

Ashley Looi

Ashley Looi combines her major in econometrics with her interest in fashion to help brands and retailers uncover actionable insights. She currently produces in-depth reports on the fashion industry and its changing retail scene across the United States, United Kingdom, Australia and Southeast Asia.

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