Opinion: Why consumer trust is broken

Many luxury brands are currently in panic mode, and this development is hardly surprising. I’ve long warned about the risks posed by misaligned or absent value propositions in the luxury sector. The latest Bain luxury study reveals a significant shift, with the luxury sector losing more than 10% of its usual customer base since 2022. This marks the first time in recent memory that the number of shoppers in the industry has declined. It’s a dramatic reversal of a three-decade-long trend in which luxury brands successfully attracted a growing number of middle-class consumers, helping to expand their sales. Luxury depends on trust Not only are clients turning their backs on the sector, but the net promoter score has also dropped to a concerning record low. Many consumers now view luxury as overpriced, leading to a dramatic decline in sales. According to Bain, the number of products sold has fallen by 20-25% compared to 2022. From our conversations and studies at Équité with high-net-worth individuals (HNWIs), it’s clear that many feel luxury brands have been taking advantage of them. A common sentiment is that “quality is declining while prices have increased dramatically.” Many clients complain about a lack of creativity, as well as a decline in taste and style among luxury brands. I recall one discussion with a HNWI who was appalled by a simple Dior T-shirt with holes being sold for over $1,000. The reaction was, “How can I take this brand seriously when they’re selling items like that at ridiculous prices?” What many brands forget is that very affluent clients are also humans and have a sense of what is fair. No one likes to feel taken advantage of. It certainly didn’t help when Italian authorities revealed that the production costs of some Dior and Armani bags were under 100 euros, yet they retailed for thousands. Many luxury brands are not only losing entry-level shoppers but are also alienating their most affluent and loyal clients. When clients start doubting the value proposition of brands — when they no longer perceive value that justifies the prices — trust is broken. And in luxury, trust is the most valuable currency. There is no desirability without trust. This is a wake-up call that the industry can no longer afford to ignore. No story, no value Most luxury brands face significant challenges in creating meaning and emotional connections with clients. The industry has traditionally been product-focused and is struggling to craft emotional, client-centric stories. What many brands underestimate is the value of emotional storytelling, which often outweighs the product itself. During a recent luxury masterclass in Paris, I showcased how some brands manage to create value multiples of 100x, 1,000x, or more compared to others in the market. A striking example of this is the recent Sotheby’s auction of Maurizio Cattelan’s conceptual artwork, Comedian — the duct-taped banana that sold for $6.2 million. This sale clearly demonstrates that value isn’t in the “product” itself, but in the story that the product is part of. Justin Sun, the Chinese cryptocurrency entrepreneur who bought the artwork, took it a step further by eating the banana at the press conference following the auction. He stated, “Eating it at a press conference can also become a part of the artwork’s history.” The act makes a unique story even more unique, potentially increasing its value further. Sadly, many brands lack an intriguing, interesting, and inspiring story, sinking into the “sea of sameness.” Despite weak value propositions, many of these brands have aggressively raised their prices, with some items seeing increases of up to 80% since 2019. While this strategy initially seemed successful — boosting revenues and profitability — many underestimated that the demand in 2021 and 2022, with a CAGR above 20%, was a bubble fueled by one-time factors. These included stimulus packages and reduced travel in China and Asia due to quarantines, which allowed luxury clients to redirect their travel spending into hard luxury. These short-term demand boosts are long gone. The bubble growth should never have been confused with intrinsic demand. The price-exclusivity trap Many luxury brands have fallen into the trap of using price as the primary tool for managing demand and exclusivity. Chanel, for instance, has reportedly seen a significant drop in foot traffic to its stores. Loyal customers are feeling priced out of the market, a sentiment confirmed by our HNWI research. We hear similar reports from clients about Bentley and increasingly about Porsche, Mercedes-Benz, BMW, and Audi. While price remains a signal, clients now define exclusivity differently. Today’s exclusivity is about empathy, presence, and being at the center of attention — qualities that many brands struggle to deliver at scale. To add insult to injury, many brands are unprepared for the generational shift to Gen Z, a cohort with much higher expectations, greater discernment, and a demand for brands to provide clarity on their core values and meaning. Paired with rapidly changing client preferences in China and an economic slowdown there, many brands now find themselves caught in a perfect storm. Lost desirability and relevance As a result, many brands have seen a dramatic loss of desirability and relevance, both among affluent and non-affluent clients. The unprecedented price increases are now backfiring spectacularly. In a situation like this, business as usual is not an option. Blaming clients or economic headwinds will just make matters worse. And hoping for a recovery next year is an illusion unless decisive measures are taken to address the root causes. The industry faces a lack of trust and a shortage of authentic, emotional, and differentiating brand stories. Most experiences brands offer are lackluster and could easily be replicated by any competitor — again, the “sea of sameness.” Passion and creativity are often missing, from product development to client experiences. The wake-up call is clear: dramatically enhance the value proposition or risk obsolescence. Luxury brands must shift from a product-first, price-driven approach to creating transformative brand experiences that foster deep emotional connections and build engaged, inspired communities. The future of luxury is client-centric, emotionally driven, and experience-focused. Are you ready to answer the call? This is an opinion piece by Daniel Langer, CEO of Équité, recognized as one of the “Global Top Five Luxury Key Opinion Leaders,” and advisor to some of the most iconic luxury brands in the world. He serves as an executive professor of luxury strategy and pricing at Pepperdine University in Malibu and as a professor of luxury at NYU, New York. Daniel has authored best-selling books on luxury management in English and Chinese, and is a respected global keynote speaker. Daniel conducts in-person masterclasses on various luxury topics across the world. As a luxury expert featured on Bloomberg TV, Forbes, The Economist, and others; Daniel holds an MBA and a Ph.D. in luxury management, and has received education from Harvard Business School. Sign up for his online luxury masterclasses at the Jing Academy. Follow him: LinkedIn and Instagram. Listen to his Future of Luxury podcast.

Opinion: Why consumer trust is broken

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Published December 02, 2024

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Opinion: Why consumer trust is broken