Doug Logan

The Resilience of Luxury

Navigating Economic Downturns in the Fashion and Lifestyle Industry

From labor shortages to supply chain woes and rising interest rates, stability seems like a far-away prospect for businesses across a range of industries. Add the looming prospect of another recession, and it's easy to see why business leaders are worried. Amid all this, however, one niche is still poised to thrive: the luxury industry.

Fashion, hospitality, automotive...every corner of the luxury business is posting impressive numbers and projecting further improvements in the months and years to come. This expectation is exemplified by an analysis from McKinsey, which reveals that, while fashion, in general, will see significant struggles in 2023, the luxury niche will boast impressive growth of up to 10 percent. Meanwhile, market research company Euromonitor anticipates that the global market for luxury jewelry will exceed $60 billion in 2023.

Luxury's ongoing growth might seem surprising to some, given the wide scale slow down across many other industries. The luxury business, however, has a long tradition of weathering economic downturns with relative ease. Below, we explore what, exactly, makes this industry so resilient and how it's expected to overcome today's most pressing challenges.


A History of Luxury Bouncing Back

For years, luxury brands have endured even as previously thriving businesses from other sectors struggled. Often, downturns have forced these businesses to get creative. This, in turn, has spurred some of the luxury sector's greatest successes.

In the world of high fashion, for example, unprecedented challenges such as the Great Depression and World War II shortages led to major breakthroughs. During this period, Gucci was forced to scale back on leather and instead, made its mark with woven hemp, which was amplified by the now iconic interlocking diamonds.

Many other noteworthy luxury brands were formed long before the Depression and managed to shift their approach enough to survive the crisis — and even thrive in its aftermath. These include not only iconic fashion names such as Prada and Burberry, but also automotive marvels such as Bugatti (which temporarily shifted its focus to the Autorail) and Aston Martin (which Autoweek explains, pulled through the Great Depression on the back of engineering excellence).

The strengths of the luxury market once again came into focus during the Great Recession. Luxury brands initially struggled alongside businesses across all sectors, with Vogue Business citing a 9 percent reduction in this market around 2008 and 2009. This trend was quickly reversed, however, and by 2011, luxury sales had returned to record levels.

Not only did established brands excel during this time, but many newer names carved out a niche for themselves and continue to remain a force to this day. Christian Siriano, for example, seems like a high fashion fixture, but his label debuted just as the recession was picking up steam. He certainly felt the weight of this crisis, but managed to make a name for himself by straddling both the high-end and mass-market areas of the fashion industry.


Spending Brings Relief During Troubled Times

The brief recession at the beginning of COVID provides an entirely different example of how consumers might respond to a sudden economic downturn. While there's no denying the widespread suffering wrought by lockdown-prompted layoffs, many consumers were able to shift to remote work or even pick up overtime hours — while also receiving significant funds from authorized economic impact payments.

During this time, consumers who were stuck at home and unable to spend money on eating out or traveling were far more inclined to dedicate those funds to tangible items. For some, these represented the rare opportunity for self-indulgence, while others found that luxury deliveries were among the few reliable ways to address the monotony of lockdown.

While the aforementioned Vogue Business report was published in 2019, it offered what turned out to be an accurate assessment of how the luxury market might handle the next recession: the sector's leaders were far better prepared than they had been in 2008. As such, sales of luxury goods surged, with many names exceeding pre-pandemic levels in 2021 and 2022. Dior was one of the biggest success stories of this era; the iconic brand harnessed the power of its esteemed name and added genius digital strategies to the mix to achieve what's been described by Vogue Business as a meteoric rise.

HNW Individuals Continue to Spend

If there's a common trend among these varying recession tendencies, it's that luxury items still attract plenty of attention from high-net-worth individuals. Typically shielded from the greatest impacts of recessions, these consumers are more inclined to continue spending on high-end products. While their spending may initially take a dip in response to economic uncertainty, purchasing behaviors are quicker to return to the status quo.

Spending has also remained strong for HNW consumers during inflationary periods, which may cause other income brackets to scale back. After all, while inflation may bring about modest reductions in these consumers' purchasing power, it could also dramatically increase their net worth, depending on the scope of their investments.

As the extreme inflation of 2022 brought doubt in many areas of the economy, experts felt confident that the luxury market would weather the changes just fine. The CEO of Capri Holdings (which owns Versace, Michael Kors, and Jimmy Choo) expressed this confidence during a 2022 earnings call, referencing the proven resilience of the luxury industry.

Consumers' Sense of Responsibility

In the luxury market, recession or inflationary spending is influenced not only by consumers' general financial status, but also, by their perception of what's happening in the broader economy. This is amplified by their assumption that they're responsible for making a difference or should at least be sensitive to the challenges faced by others.

This trend was evident among HNW individuals during the Great Recession. Those who saw only modest impacts on their net worth were still inclined to scale back major purchases due to cultural concerns. At the time, many HNW consumers expressed that they felt guilty about spending extra on luxury items when so many others were struggling. A New York Times piece from 2011 captured the ethos of the time by interviewing an entrepreneur who explained, Overall, you want to wear less branded items. If you have the wherewithal to spend, you never want to be showy about it.

In keeping with this perception, brands have adjusted their offerings to reflect how consumers in all income brackets are feeling. This might mean shifting the focus to apparel that appears less bold or ostentatious but still shows exceptional craftsmanship. The results speak for themselves, for, while some consumers initially question their desire for luxury goods amid economic turmoil, the numbers make it clear that many are still quite happy to treat themselves.

The Enduring Power of Customer Loyalty

It's no secret that a loyal customer base can pay dividends, but this is especially evident in the luxury market, where extremely loyal consumers will continue purchasing their favorite items through recessions or inflationary periods — and no matter what turmoil comes their way. Yes, it helps that they're shielded from the worst effects of these downturns, but the power of comfort cannot be understated: when the going gets tough, luxury consumers turn to the tried-and-tested products they know will help them feel better.

Luxury brands can capitalize on this tendency by continuing to build strong relationships with consumers over time. These connections may require years of nurturing, but the long-term payoff can be considerable. This approach means doubling down on rapport during times of economic strength in hopes that spending won't evaporate completely in times of economic trouble. Then, even if they withhold spending to some degree, many will continue to invest in the items they hold dear.

Innovative Digital Solutions

These days, luxury brands have yet another tool available to help mitigate recession-inspired challenges: the internet. From automation to cloud migrations, a variety of cost-cutting measures help businesses across all sectors operate more efficiently, thereby limiting the impact of economic shockwaves. These solutions empower businesses to make cost-cutting decisions in a strategic manner, rather than behaving reactively and potentially limiting future growth potential. This trend is especially notable in modern warehousing, with brands such as Uniqlo clearly pursuing a tech-oriented approach.

Recession-oriented digital opportunities also extend into the complex world of marketing. Messaging must be in step with the times and, during a recession, this means expressing empathy and purpose-driven business practices. Many luxury brands excel in this regard, managing to retain the perception of being in touch with consumers, even as they sell high-end products in times of economic turmoil. Meanwhile, automation is influencing modern marketing campaigns, allowing numerous brands to streamline workflows without losing their air of exclusivity.

A Bright Future for the Luxury Industry

While LVMH North America CEO Anish Melwani cautions, there's no such thing as being immune from recession, it's abundantly clear that the luxury industry has developed a strong framework for weathering economic downturns. With the right approach, these periods can actually inspire much-needed innovation and set up luxury brands for long-term growth. Add new digital solutions to the mix, and the outlook for the luxury should remain bright for the foreseeable future.

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