Aspirational shoppers are cutting back. What next?

This article is part of our Advanced Membership package. To enjoy unlimited access to The Long View from Vogue Business and bi-monthly Market Insights Reports and webinars, sign up for Advanced Membership here. When model Kaia Gerber took to the catwalk for Valentino at the brand’s couture show outside the Château de Chantilly in July, she was wearing a pair of slouchy hand-beaded jeans — enough to cause a viral stir online. An aspirational look, but with a couture price tag, well beyond the pocket of the typical aspirational consumer. “In Paris, designers showed pieces that ostensibly looked like casualwear,” says Karla Martin, managing director for the fashion apparel and footwear practice at Deloitte. “But, that’s impossible to knock off. A lot of what we saw on the runway was technical excellence, incredibly precious materials and a lot of handwork.” It’s a sign of the ongoing bifurcation of top- versus low-end fashion. Aspirational consumers are less of a priority for luxury brands right now. The decline in spending by this type of consumer is at the root of the ongoing quiet luxury trend, says Mytheresa CEO Michael Kliger. “Aspirational customers are buying less,” he says. “The more vibrant part of the market is driven more than usual by the timeless consumers — the high-net-worth individuals (HNWIs).” Brands are seeking to compensate for the decline in spending by the aspirational consumer by raising prices and targeting wealthier shoppers with discretionary funds to spend. Price rises have also been forced by inflationary pressures on manufacturing. “Across the board, luxury brands have increased prices to offset the rising costs of raw goods — bottoms, footwear, dresses and handbags are the categories hit the hardest,” notes Kayla Marci, market analyst at retail insights platform Edited. Products online retailing upwards of $2,000 currently make up approximately 26 per cent of stock available — up from 22 per cent a year ago, according to Edited research. Consultancy McKinsey estimates that the price of luxury goods has increased by 15 per cent year-on-year on average over the past three years, senior partner Sandrine Devillard says. The drop in spending by aspirational consumers was highlighted in earnings calls in the first half of this year. LVMH CFO Jean-Jacques Guiony emphasised the impact during Tuesday’s second-quarter earnings call. “We experienced a bit of pressure with the American customer, to varying degrees among brands,” he said. “All in all, we have a situation where the aspirational customer is suffering a bit. We are experiencing drops with entry-price products, online sales and second-tier cities, which is a clear sign that the aspirational customer is not shopping as much as they used to.” Earlier this month, Burberry interim chief financial officer Ian Brimicombe said in an earnings call that “the aspirational shopper has weakened a little”. Richemont reported a 2 per cent decline in sales in the Americas. Earlier this year, Kering and Ferragamo were among a slew of brands that made a clear distinction between their aspirational shoppers, who are spending less, and HNWIs, who have not altered their spending patterns. Analysts initially expected the second half of the year to improve, given that year-on-year comparisons tend to be easier at this point, according to Jessica Ramírez, senior research analyst at research firm Jane Hali & Associates. However, it isn’t panning out, given ongoing inflation and associated volatility in the US. “The [post-lockdown] luxury boom has plateaued in the US as the market experiences an economic slowdown,” Marci says. Ramírez attributes the conservatism of recent earnings calls to general caution about the mood of the US consumer. American consumers are feeling the squeeze most in the middle tier — “which is where aspirational lives”, according to Deloitte’s Martin. “If you’re choosing to buy food or gas or summer camp [places] for your kids or things that are going up as the economy changes, you probably don’t need that extra $500 bag.” Those who shop for $7,000 bags are less concerned, she adds. ‘A tale of two consumer groups’: Who is pulling back? The aspirational consumer might be pulling back, but top-tier spending remains strong. Monisha De La Rocha, partner at consulting firm Bain & Company and member of its retail practice, says the ultra-high-net-worth individuals (UHNWIs) are less reliant on consumer credit and don’t feel the need to be cautious in their purchases. Brands and retailers are following the path of these consumers who are still happy to spend. Mytheresa saw a GMV growth of just 7.8 per cent in the second quarter, and it returned to 18 per cent growth by the third. Kliger attributes this to a laser-sharp focus on top-tier customers: in the third quarter, GMV generated by Mytheresa’s top customers surged by almost 37 per cent, accounting for 36 per cent of total GMV, it reported. This makes clear the divergence between the two consumer groups. “Mathematically, if the average is 18, the top end grows 37 — which is one-third of our business. Then, of course, the pullback on all aspirational continues,” Kliger says. In the third quarter, the US was the retailer’s fastest-growing region, he notes. According to McKinsey’s July US consumer spend report, spending has declined across all age demographics, but it’s steepest among Gen X, followed by Gen Z and millennials. The findings were in contrast to data on intent to spend — millennials were the most likely to report intent to spend last quarter, according to McKinsey, but their actual year-on-year spend in the quarter was negative, at -5 per cent. Apparel is the fourth-ranked category that consumers intend to spend on (behind restaurants, groceries and travel). The current cross-generation ambivalence poses a challenge for brands, which need to juggle attracting new, eager consumers with the important retention of high-spending consumers. The potential of new, young customers is always front of mind: spend from younger consumers is growing three times faster than older generations, according to a Rakuten and Vogue Business survey of Vogue and GQ readers in May. Sixty-three per cent of millennials had bought luxury in the previous 12 months, versus 60 per cent of Gen Z shoppers, 46 per cent of Gen X and just 18 per cent of boomers. How brands and retailers are levelling-up Brands can future-proof their businesses by catering to younger demographics, but must simultaneously retain their traditional high-net-worth consumers, Bain’s De La Rocha says. The changing market is reflected in a move away from lower-priced products. Sneakers showed the most significant decline within luxury assortments, with new offerings down 34 per cent year-on-year, according to Edited’s Marci; T-shirts, footwear and accessories featuring a logo also experienced a 17 per cent decline in majority SKU sell-outs year-on-year. “This is reflective of luxury brands’ efforts to redefine their assortment strategies to appeal to top-tier consumers, pulling back on lower-priced merchandise directed at younger buyers who are more cautious with their spending,” Marci says. Brands are leaning further into traditionally luxury categories. Deloitte’s Martin flags how Banana Republic (which refreshed its upscale image in 2021 with a brand revamp with New York-based studio Decade) has developed a distinct resort collection. Other brands with lines at the more affordable end of luxury, including Coach, Diesel and Ralph Lauren, have sought to elevate their labels in recent years. The goal is to appeal to high spenders, reducing reliance on the fickleness of aspirational luxury consumer spend, while offshooting Gen Z lines to attract younger consumers that might one day become the brands’ high-spending customers. Coach: Owned by Tapestry, Coach has been pushing away from aspirational style into luxury for several years, according to analyst Ramírez. In 2022, the brand raised prices by 7 to 8 per cent globally. It has been aiming to appeal to younger customers through technology and a commitment to sustainable values. In May, Coach partnered with AR fashion try-on company Zero10 to offer digital versions of its revamped Tabby bag. It also launched sub-brand Coachtopia, a new line of products made from material waste, geared towards Gen Z shoppers. The Coachtopia launch might seem at odds with the price hikes imposed by most luxury brands (Coach included). The sub-brand’s average price is 37 per cent below its main assortment offering, at $495 versus $1,495, according to Edited’s Marci. But, she considers it a smart move. By offering a more economical price point during the cost-of-living crisis, Coach can still tap Gen Z while elevating its main line. Coach has subsequently increased its awareness score (a figure derived from both unaided and aided awareness) by 10 per cent in the Vogue Business Index, indicating increased consumer attention on the brand. “What I love to hear is: ‘Not only is it a brand for my mum — it’s a brand for me now.’ And that’s what we’re hearing more and more,” said Scott Roe, Tapestry’s chief financial and operating officer, during May’s earnings call. CEO Joanne Crevoiserat ascribed reported slower US growth to “an increasingly challenging consumer backdrop” and “a more generally cautious consumer”. Diesel: Diesel has also undergone a repositioning in recent years in a bid to capture Gen Z. From its Y2K-style belts to its metaverse and Web3 offerings, the brand has increased in popularity among its Gen Z target audience by establishing itself as a cultural player. It’s also levelling-up, establishing a safety net alongside its new target audience. In 2020, new CEO Massimo Piombini sought to create a more exclusive profile by closing stores, cutting options and upping prices — stepping away from mass market positioning, says Edited’s Marci. Edited has tracked an increase in sell-outs, despite fewer stocked items and average prices increasing 60 per cent since 2021. Ralph Lauren: Last September, Ralph Lauren announced its ‘Next Great Chapter: Accelerate’ strategic growth plan to develop the brand’s global presence and elevate its offerings. Its Average Unit Retail (AUR) has risen consecutively for 24 quarters (since FY 2018), increasing overall by 80 per cent during the period. Ralph Lauren is one of the 10 most iconic brands in the eyes of the luxury consumer, according to the Vogue Business Index. Despite the steady price rises, it’s still well behind the majority of other brands in the top 10, illustrating the success of the brand’s elevation strategy in terms of luxury perception. During Ralph Lauren’s May earnings call, CEO Patrice Louvet said that the company had seen growth at full-price stores while outlet sales declined. “In North America specifically, there is continued divergence between our core high-value consumers and that subset of more value-oriented consumers,” he said. The company is stocking up on core products including Oxford shirts, blazers and dresses, betting that luxury consumers in a downturn will be drawn to staples that can outlast seasonal fashion trends. Brands and retailers are also tapping ultra-wealthy consumers by offering an improved variety and calibre of experiences. “It is very important to build long-lasting relationships and create moments [for the] customer who is time constrained,” Mytheresa’s Kliger says. And retailers need to step up on these experiences. “What was special four years ago is not special nowadays,” he adds. “To ask a client to spend time, the bar is higher.” The new menu of experiences offered to UHNWIs and HNWIs includes special trips, opportunities to meet designers and visits to private archives. Brands will also travel to suit the convenience of high-spending clients. In January, Mytheresa headed to Aspen. Just this past week, Kliger was in The Hamptons for the retailer’s pop-up partnership with Los Angeles-based luxury lifestyle brand Flamingo Estate, meeting wealthy New Yorkers ‘out east’ for the weekend or summer. Miami-based multi-brand retailer The Webster is taking this approach one step further with an ongoing pop-up partnership with The Rosewood (it has a permanent boutique at the Miramar Beach Montecito location). The Webster is popping up at Rosewood Mansion on Turtle Creek in Dallas in September, followed by an appearance at Hôtel de Crillon (a Rosewood property) during Paris Fashion Week. The pop-ups service the “transient lifestyles” of The Webster’s clients, as CEO Laure Hériard Dubreuil puts it. “Rosewood’s vast portfolio of properties gives us immense access to trial new markets and helps identify new client opportunities while complementing the beautiful accommodations and offerings each property has curated for their guests.” Dallas, for instance, has long been on Hériard Dubreuil’s radar — through the pop-up, The Webster can simultaneously grow awareness and test potential opportunities in the area. The long run The aspirational segment of consumers still merits attention — more than 30 per cent of them still plan to splurge, according to McKinsey. “Apparel in fashion is a consumer business,” Deloitte’s Martin adds. “The second there is a segment that is underserved, a brand will pop up to serve them.” Analyst Ramírez agrees that brands will step up their accessible offerings once more when there’s an economic uptick. There’s also an opening for emerging brands to snap up new business. “There is likely an opportunity for smaller emerging brands that are supported by strong founder visions and hero products that can become next generation icons,” Bain’s De La Rocha says. These brands position themselves as unique rather than luxury, reflecting a mid-range price point, Ramírez says. For example, the likes of Telfar (creator of the ‘Brooklyn Birkin’), Luar and Puppets and Puppets built their brands on recognisable handbags. By selling through Farfetch and Ssense, they become aspirational brands, Martin says. Priced in the hundreds of dollars, they’re a tempting option for shoppers looking to save money. “Contemporary or aspirational luxury brands that operate at lower price thresholds are well poised to fill the widening gap and cater to Gen Z,” Edited’s Marci says. “Brands that offer handbags between $115 and $700 create a budget-friendly alternative to heritage luxury items.” However, emerging brands can also be hit by the impact of reduced spending by aspirational shoppers. Consumers often seek sanctuary in brands that they know rather than experimenting with new names. They might prefer to ‘play safe’ by buying a $1,000 Coach handbag rather than a new brand, despite any saving on the cost. Martin advises brands to consider the potential of the “huge swathes of forgotten consumers” — such as African American, Latino and Asian American and Pacific Islanders, many of whom spend heavily on fashion, but are historically underserved in marketing terms. Brands are responding — consider, for example, the slew of brands tapping K-pop talent. An ability to sense and monitor the changing mood of the consumer is an essential attribute for any fashion marketer. The luxury industry is currently adapting to consumers pulling back spend transition — and will adapt to them again in the future. “We always live in cycles,” says Mytheresa’s Kliger, expressing confidence that aspirational consumers will return in force. “There’s a boom. There’s a desire for quiet luxury. And there will be logomania again.” Key takeaway: Aspirational luxury consumers (or HENRYs) are pulling back their spend, leaving brands to adjust — or continue with — their elevation strategies accordingly. From higher-end luxury price increases to more accessible luxury brand elevation strategies, retailers and brands are targeting high-net-worth individuals (HNWIs) in order to ensure financial success amid an unstable US economy. They’re also future-proofing their businesses by diversifying their strategies in order to tap Gen Z shoppers while retaining their already-loyal followings. To receive the Vogue Business newsletter, sign up here. Comments, questions or feedback? Email us at feedback@voguebusiness.com.

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