From glamour to caution: Why investors are retreating from the luxury market

Over the last weeks I had numerous meetings with some of the most important investors in luxury brands in Los Angeles, Tokyo, and Monaco. Given the recent decline of many stocks including LVMH, Kering, and Hermès, there was a profound nervousness around the industry's trajectory. While I remain optimistic on the long-term prospects of the luxury sector, there are significant shifts that impact all luxury brands and that only few are prepared for today. These shifts are, in part, the reason why some investors are now showing caution towards the luxury market. First, changing consumer values and expectations. Increasingly, especially among younger demographics, luxury clients are valuing experiences over possessions, and demonstrating a preference for ethical, sustainable brands. In the recent Pepperdine Disruptive Luxury Symposium in Malibu, we discussed this topic with ultra-high-net-worth luxury clients and their number one concern is what we call net-positivity. Few brands today are even close to delivering on this expectation. This challenges the traditional luxury model, which has often been built on conspicuous consumption and resource-intensive manufacturing. At the same time, local brand preferences, especially in China, are shifting fast with a growing attraction towards local brands. If luxury brands are unable to swiftly adapt to these changing consumer preferences, they may see a decline in their market share. Second, global economic and geopolitical uncertainties. The luxury sector is frequently affected by economic trends and global shocks. With ongoing geopolitical tensions, the threat of trade wars, and a volatile economic climate, discretionary spending could decrease. Europe just slid officially into a soft recession. In many discussions with luxury brand CEOs I see an increased nervousness about rapidly changing geopolitical frameworks, including becoming aware of a potential overdependence on the Chinese market. Third, the next chapter in digital. Despite the increasing importance of e-commerce in the retail sector, many legacy players have been slow to embrace digital technologies due to fears of diluting brand prestige and exclusivity. While the pandemic has forced many brands to catch up, there are still significant gaps towards a fully fluid digital-physical client experience. This lag in digital mastery is a significant vulnerability as brands risk losing market share to digitally-savvy competitors. These aspects explain why the luxury sector has turned from glamour to caution recently, causing some investors to reconsider their positions. CEOs of luxury brands not only need to master the operational challenges to address these shifts but also manage the growing expectations of investors. Named one of the “Global Top Five Luxury Key Opinion Leaders to Watch,” Daniel Langer is the CEO of the luxury, lifestyle and consumer brand strategy firm Équité, and the executive professor of luxury strategy and pricing at Pepperdine University in Malibu, California. He consults many of the leading luxury brands in the world, is the author of several best-selling luxury management books, a global keynote speaker, and holds luxury masterclasses on the future of luxury, disruption, and the luxury metaverse in Europe, the USA, and Asia. Follow him: LinkedIn: https://www.linkedin.com/in/drlanger, Instagram: @equitebrands /@thedaniellanger

Sectors

Insights

Company

From glamour to caution: Why investors are retreating from the luxury market