After years of global growth, the luxury industry is facing a new enemy: “underconsumption.” On TikTok, #underconsumptioncore is trending as the next generation of potential shoppers swap tips on how to look good while buying and spending less. The entire industry is struggling as consumers bristle at luxury price points and are bewildered by designers’ quick turnarounds.
Last week, shares in Kering, which owns luxury brands including Gucci, Balenciaga, Yves Saint Laurent and Alexander McQueen, hit a seven-year low. The company said operating profit would fall 30% in the second half of the year, after a 42% drop in the first half.
LVMH, the French luxury giant, later confirmed it was concerned about falling demand, even among brands with wealthier clienteles that typically don’t seek out younger, less affluent customers, as the company missed its sales expectations.
Related: LVMH and Kering shares fall as consumers curb luxury spending
Even LVMH’s champagne sales are falling. The company’s chief financial officer, Jean-Jacques Guiony, said the current global climate could be “not making people cheer up and open bottles of champagne.” In the process, LVMH Chairman François Pinault lost $19.2 billion, or 9% of his fortune, according to the Bloomberg Billionaires Index, dropping behind Tesla’s Elon Musk and Jeff Bezos.
Only brands catering to the wealthiest consumers appear to be weathering the shift. Hermes reported a 13% increase in sales. Burberry, on the other hand, issued a second profit warning in a year, replaced its CEO and saw shares fall to 2010 levels.
As shoppers curb their spending after exhausting their pandemic cash in the face of an ongoing cost-of-living crisis, some are wondering if consumers are losing their taste for luxury. Some in fashion worry that the past few years will be seen as a luxury bubble – the product of 0% interest rates.
After pushing up prices in the wake of Covid-19, some brands are now offering steep discounts to lure Asian consumers back into the market and tackle the glut.
In the past, “everyone was a winner” in China’s luxury market, Jonathan Siboni of fashion data company Luxurynsight told AFP. “Now there is a polarization between winners and losers.”
Kering noted that it was affected by “uncertainties weighing on the evolution of luxury consumer demand,” suggesting that younger consumers, strategically poised to become big consumers, may not be as easy to entice.
A new era of retail is dawning that is not so transactional
Chloe Lacombe
That seemed to be the case this week in the vintage clothing stores of Williamsburg, Brooklyn. Miles away from the high-street fashions of SoHo or Fifth Avenue, Williamsburg has long since made the transition from hipster hangout to mainstream shopping mecca, with its thrift shops, restaurants and independent bookstores. The latest makeover has been all about luxury. Chanel opened its first store in Williamsburg last year selling makeup, and Hermes followed suit by selling dog bowls, scarves and belts. Last summer, the brand held its post-Fashion Week party in Williamsburg, with filmmaker Taika Waititi walking the runway, Kim Gordon playing a set and Matt Damon in the audience.
The luxury brands are there, but vintage fashion stores rule and have a soft spot for the more luxurious stores.
Katina Fauteux, 30, of Chickee’s Vintage, said luxury wasn’t dead but was still on a learning curve. “If the big houses got into vintage, they could appeal to the younger generation. They could resell it, like Levi’s sells old 501s. If Prada did that, it would bring in a new clientele of my age or younger.”
According to Fauteux, even fashionistas are put off by the big brands, because fashion houses change their designers so quickly that it has become impossible to settle down and start a career. “They are nowhere long enough to make an impact,” she adds, pointing to a black Christian Dior dress “made just to make money.”
Chloe Lacombe, who lives around the corner from men’s store Chickee, said Gen Z hasn’t lost interest in fashion – probably the opposite – but that luxury brands are “losing us when it comes to shopping”.
“People my age don’t go to the Gucci store or the Louis Vuitton store that quickly. We want to find it somewhere else, in a [vintage] store like this. It’s a new era of retail that’s not as transactional as those stores where you go in, everything costs a thousand dollars, they have great customer service but you can’t talk to them about your day or where the best local coffee shop is. They’re there to sell you stuff.”
There are also environmental and exploitation concerns that have spread from fast fashion to high-end fashion. A Milan court recently named Dior and LVMH-owned Giorgio Armani as two brands whose products were made in sweatshop-like conditions in Italy. Bloomberg found that Loro Piana’s $9,000 vicuña sweaters relied on free labor from indigenous Peruvian farmers.
Related: Nowadays, wearing a second-hand outfit is something to brag about, not whisper about
The big brands still hope that luxury marketing can solve their structural and reputational problems. LVMH created the medals and the Olympic torch case for the Paris Games, along with many of the outfits for the opening ceremony – perhaps a little too obvious.
Fashion journalist Amy Odell noted that the company “managed to turn the Olympics opening ceremony into a giant advertisement for itself… LVMH brands didn’t just insert themselves here and there, they were more of a marketing patina over the whole thing.”
Not everyone is convinced it’s money well spent. In Williamsburg, Marco Liotta, a founder of Amarcord, one of Williamsburg’s first high-end vintage fashion stores, said his customers “don’t want to be categorized. They want to be recognized for the uniqueness of the look, to be distinct and not be associated with something that took 50 gallons of water to produce.”
He ventured that the big houses needed to find new audiences, including communities they had never served before. Bottega Veneta, he noted, had recently played a show in Atlanta “because that’s where the biggest community of rappers and the black community with money is.”
“Brands should abandon the super-rich, who will always buy Gucci,” he added, “and focus on communities they have never served.”