Chanel and Hermès prove power to elevate wearer status through iconic accessories, per Vogue Business Index

This Vogue Business Index 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. This is one of the five chapters comprising the Vogue Business Index: Winter 2022/23 edition and should be read in conjunction with the others. Please use the table of contents below to navigate between the chapters of the Vogue Business Index: Winter 2022/23 edition. Key takeaways: Product quality is key. Since spring, consumers have become notably less impressed by luxury brands’ digital services and the quality of cut and fit produced. Supply chain pressures are adding up, and costs are increasing, but fashion houses need to ensure the quality of items being sold is high enough to be called luxury or risk the increasingly critical eye of their clientele. Some will hunt for bargains. Luxury brands can be cheered by the fact that the majority of shoppers will not be put off by rising prices, with younger shoppers being the most undeterred. However, a sizable minority of luxury consumers say increased prices will mean that they wait to buy more of what they want via sales and promotions. Prepare for Chinese tourists. Chinese consumers’ enthusiasm for most leading luxury brands has deepened since last year. With borders opening and the return of travel, retailers and brands need to ensure the stock is in place to prepare for these high-spending Chinese tourists who are likely to return. Expect rises in local destinations such as Hong Kong and Hainan first. Shoring up brand allure The luxury sector has endured the Covid-19 pandemic and several economic shocks in the last few years, but sales have largely remained strong — despite some quarterly blips. But, with the cost of luxury goods getting ever higher, are some brands appealing less to customers than they used to? There is some evidence that the classic allure of some high-end fashion houses is fading. When asked to rate the degree to which brands give wearers an elevated sense of status, for instance, the vast majority of brands (78 per cent) performed worse than they did in the spring 2022 edition of the Index. A number of accessible US luxury retailers, such as Tommy Hilfiger, Tory Burch and Coach, were among those with significant drops in their scores. Brands with a strong reputation in leather goods, such as Chanel and Hermès, bucked this trend and gained stature over the half-year gap between the surveys. Similarly, Dior, which saw a big rise from 33rd to 9th. Exiting CEO Pietro Beccari, who is joining Louis Vuitton as CEO and chairman (effective 1 February), spent heavily on transforming Dior, helping it to become the strongest digital performer in the Index. This included an overhaul of the brand’s Paris flagship and a return to investment in physical shows, such as the spectacular event by the pyramids of Giza from menswear lead Kim Jones. Beccari’s Dior also performed well in the consumer pillar, with Louis Vuitton leapfrogging Hermès to deliver the second-best score across all consumer metrics tracked (Chanel once again finished first). It is hard to say exactly why the status level of most brands has diminished. Across almost every question asked of consumers about how brands were performing, survey respondents typically rated brands lower on average than they did in spring last year. Consumers giving a lower rating to the digital experience perhaps has a seasonal explanation, with digital portals having been stress-tested during the rush for holiday-buying in December, but a similarly sized decline in the view of the quality of apparel in terms of the cut and fit for instance, from brands in the Index is not as easily explained. Eighty-seven per cent of brands saw their score on quality decline, with eight out of the 60 brands seeing their average rating decline by more than 8 per cent. Brands should ensure they are getting the basics right: product quality is invaluable in keeping consumers impressed. Generation flaunt A significant portion of young luxury consumers are shrugging off fears of increasing prices and worsening economic conditions. Twenty-two per cent of shoppers aged 18 to 34 said that despite increasing prices in the year ahead, they would be spending more on luxury fashion in comparison to just 14 per cent of over-35s. That is higher than any other age group, with older consumers considerably more likely to say they will keep their spending the same or shop more during sales. Setting prices in 2023 could be a real riddle for brands. Raw materials costs are increasing as supply chains are squeezed, but many fashion houses have already delivered above-inflation price rises over the last few years. Currency fluctuations also mean there is a significant price gap between the US and Europe, but closing it would mean double-digit price increases in the latter, which some analysts and industry execs fear could price some Europeans out of the luxury market. Price sensitivity was most pronounced in the US, UK and France, where 45 per cent, 43 per cent and 38 per cent of shoppers, respectively, say they would cut back on designer fashion if costs went up. The opposite is true in Brazil and the Middle East, where over three-quarters of buyers say that increasing prices will not affect how much they spend, or they still see themselves spending more. This suggests a sustained perception of luxury goods as an investable tangible asset. Most luxury consumers, the average across all ages and regions, say price increases will not put them off the brands they want, with 82 per cent reporting that they will be buying from the same brands or switching to even more expensive names. How they buy those brands may change, however, with nearly half (47 per cent) saying these increases would encourage them to wait for sales and discounts. That is more true of older consumers, with 54 per cent of over-45s keen to buy off-price versus 44 per cent of younger shoppers. Luxury consumers in the Middle East are the least likely to imagine buying in sales (only 38 per cent), again an indication of luxury being seen as an investment by consumers in the region. Over half of brands now accept buy-now-pay-later (BNPL) in the UK, a response to the growing popularity of this mode of payment, particularly among younger shoppers. Those aged 18 to 24 are among the most likely to expect to use credit or BNPL to fund higher-priced luxury purchases (18 per cent report this expectation), but they are nearly twice as likely (32 per cent) to say they will simply save up to buy what they need. While the overall picture suggests that luxury shoppers trying to save next year will be in the minority, a significant portion of consumers will still be looking to cut back (30 per cent globally). Brands should consider the introduction of items at lower price points or diversification into more affordable categories such as beauty (or even home fragrance, like Loewe) if they want to keep this cohort of shoppers engaged. The true sneaker generation The Vogue Business Index Winter 2022/23 is the first to contain data on casual designer shoes, including sneakers and pumps, such as the Des Garcons Play x Converse high-tops and Gucci Aces. The majority (61 per cent) of luxury customers bought at least one pair of casual luxury shoes last year, a higher share than the 50 per cent that spent money on formal or dress shoes. Surprisingly, consumers aged between 18 to 24 are the least likely to have bought casual shoes from luxury brands during 2022, with over 55s marginally more likely to have done so. Surveys of young US consumers show that sports specialists, rather than designer brands, lead when it comes to preferred casual footwear brands. The generation most likely to have spent money recently on comfortable luxury footwear are those born in the late 1960s or 1970s. Men are also more likely to be buyers than women. Alternatives to sneakers, such as Birkenstock’s Boston Clogs (Lyst’s shoe of the year) and Miu Miu’s ballet flats, have hogged the limelight as of late. While the sneaker market is still increasing in sales, growth has slowed in the last year, and industry observers, from streetwear enthusiasts to analysts, have started to question whether the sneaker boom might be over. Analysts have suggested there might be a bigger focus among some shoppers next year on sports brands that prioritise function as well as form. Luxury brands would be smart to learn from the Swiss watch market, where sales of accessible electronic timepieces slumped as smartwatches rose in their stead. Just as the market for formal shoes was degraded by the casualisation of the workplace, athletic shoes designed with technical expertise by sportswear brands might pose a similar threat to casual designer footwear. Recent collaborations, such as Loewe partnering with running shoe specialists On, and Maison Margiela with sports brands Salomon, look like a smart way to get ahead of trends. Brand enthusiasm grows in China China recently opened up its borders, allowing consumers to move much more freely around the country. The pressure is now on retailers in regional shopping destinations such as Hong Kong and Hainan to get ready to deliver. In spite of the challenging circumstances faced in the last year, enthusiasm for leading luxury brands has only increased. Chinese shoppers gave Louis Vuitton an average score of 8.21 out of 10 when asked how likely they are to consider buying from the brand the next time they make a purchase, up from 7.53 in spring 2022. Other major brands, including Burberry (7.03 in winter 2022/23 versus 6.79 in spring 2022), Dior (7.72 versus 7.07), Chanel (7.98 versus 7.19) and Prada (6.81 versus 6.39), have all benefitted from similar surges in consumer enthusiasm in China. The effect of Covid lockdowns can be seen in how Chinese consumers reported their shopping habits. Eighty per cent say they do half or more of their shopping in stores — a similar share (82 per cent) as does this globally. However, the proportion of shoppers in China that say they do the entirety of their shopping in physical retail outlets has halved since spring (9 per cent in winter 2022 versus 18 per cent in spring 2022). Enthusiasm for in-store shopping is undimmed, it seems, even as Covid cases reportedly surge. Authorities have reported healthy duty-free sales in local tourist destination Hainan province, while Chinese travel agents were reporting significant year-on-year rises in bookings for Chinese New Year trips in January. It will take time for airlines to rebuild route networks from China to European destinations, and neighbours, including South Korea and Japan, are far from ready to welcome Chinese shoppers with new restrictions recently introduced between the countries. However, as the situation develops and Chinese travellers start planning to spend money abroad, retailers should be aware of their increased intent and enthusiasm for the biggest luxury brands. Those looking for a local adventure in China may board the Panda Panoramic Express, a new train starting this year with panoramic windows that will eventually connect Dujiangyan to Mount Siguniang and a panda reserve. Slower travel is increasing in demand among high spenders, with those wanting to travel in style opting for new routes such as Accor Group’s Orient Express La Dolce Vita. Gucci’s collaboration with the North Face last year saw train enthusiast Francois Bourgeois fronting the campaign, putting intrepid railway adventures front and centre of its storytelling. In future, this mode of transport may represent an important new channel for travel retail while also creating new opportunities for seasonal retail. Case study: The risk and rewards of changing Gucci Gucci is the third best-known fashion brand in the world among luxury consumers. Forty-one per cent name the Italian fashion house unprompted when asked to name a luxury brand. This is just behind Louis Vuitton (43 per cent) and Chanel (45 per cent) but way ahead of fourth place Dior (28 per cent). The brand’s current leading reputation is in part down to former creative director Alessandro Michele. He left late last year, having seen Gucci’s revenue grow to nearly €10 billion in 2022 from just under €4 billion it was delivering when he took the role in 2015. Gucci’s appeal has nevertheless faded in almost every key market of late. For instance, 26 per cent of Chinese consumers said they were very likely to consider the brand for their next luxury purchase, down from 31 per cent in winter 2021. There are five other brands (Hermès, Chanel, Prada, Louis Vuitton and Dior) that luxury consumers globally say they would be very likely to recommend to family and friends before they would pick Gucci. Gucci has always trailed behind its rivals in some of the prestige brand metrics tracked by the Vogue Business Index, such as the sense of elevated status wearers feel and how iconic they think it is. Reports have suggested that Kering is looking to address this with whoever they pick as the next creative head. Interestingly, the eponymous brand of former lead designer for Gucci, Tom Ford, outperforms Gucci in some of these areas. And yet, creativity is always subjective, and if Gucci were to abandon the originality that Michele brought to a more timeless approach, the brand could fall down on the only metric where it (marginally) leads against main rival Louis Vuitton, standing for something unique. To receive the Vogue Business newsletter, sign up here. Comments, questions or feedback? Email us at feedback@voguebusiness.com. You can learn more about the Vogue Business Index and Advanced Membership here.

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