The Luxury Malaise

The big news this past week were Q2 earning reports, and numbers for the two biggest luxury conglomerates have not been particularly positive: Kering’s sales were down 15% (CNBC) with flagship Gucci down 25% (WWD), while LVMH’s fashion and leather goods sales plunged 12% (Forbes). Bernard Arnault is blaming market malaise on everything from “economic turbulence” and cultural shifts to quiet luxury and the resale juggernaut. Taken all together, it signals continuing difficulties ahead for the luxury segment, with a recovery not expected to take off until 2026.

The bright spot: Hermès Q2 sales were up 9% (WWD). Though, as Amy Odell reported this past Friday, the gains came mainly in leather goods; fashion and silk departments saw weaker sales growth and perfume and beauty contracted (just another confirmation that luxury beauty is also struggling across the board). Still, Hermès’ strong performance now means it has overtaken LVMH as the world's most valuable luxury brand.

So why is any of this important, especially if you’re an independent designer? Because it’s an excellent case study in branding and strategy, as a successful business always comes down to strong brand fundamentals.

Hermes gift box. Image courtesy of yuriyt / Shutterstock.

 Artistic Vision Meets Values

One of Hermès ’ biggest strengths as a brand is that all its departments and product categories tie into the brand’s values of heritage, craftsmanship, quality, and functional yet beautiful design. Even though departments have different creative directors, all of them design product that works in harmony with the house’s values and design codes. This allows for product to be merchandised across categories both in-store and within a seasonal ad campaign; for example, the brand can merchandise women’s RTW with handbags and jewelry and convey a coherent visual narrative regarding the current season.

At Louis Vuitton, on the other hand, the individual departments appear to operate entirely independent of one another, which frequently makes the house feel schizophrenic. Nicolas Ghesquière’s futuristic womenswear does not make sense with Pharrell Williams’ logo-heavy men’s collections, nor does it live comfortably next to the house’s rather staid iconic bags. This not only means the brand does not have a unified visual language and identity, but merchandising product across categories is tricky because the individual departments don't work well together. And that’s a problem because whether consumers are stepping into a boutique or looking at an ad campaign, they want to experience a cohesive and immersive brand universe.

Louis Vuitton boutique, Galleria Vittorio Emanuele II, Milan, Italy. Image courtesy of Cineberg / Shutterstock.

ROI

This is where we are seeing the recent scandals of pricing increases and quality affect customer perception. First, the pricing increases that brands implemented over the last few years have contributed to many of luxury’s current problems. It has particularly affected two groups: aspirational customers, who can no longer purchase product at opening price points, and consumers who can afford high-end prices, but are more focused on quality than what’s trending.

With regards to pricing, brands have been fairly transparent that aspirational customers have dropped off. In fact, last month Boston Consulting Group (BCG) released a study entitled, True-Luxury Global Consumer Insight 2025 (you can read more about the report here). This study attributes several reasons for the revenue drop in luxury (down 2% in 2025 from 2024), but two of the most important are the decreasing interest on the part of the newer generations, whose purchasing power has shrunk, and especially a downturn in purchases by aspirational consumers due to skyrocketing luxury goods prices.

In addition, while top-tier clients have been spending more with fashion brands over the last decade (they’ve increased their expenditure from 12% to 23%), the study points out that one of their biggest pain points is that they are often disappointed by product quality.

Which brings me to my second point: The issue with quality. It’s a problem that has particularly affected LVMH, which now has two marque brands tied up in the Italian manufacturing scandal – Dior and Loro Piana - contributing to the feeling that LVMH products are overpriced. Social media for several weeks has been dominated with the sentiment that LV is essentially fast fashion, but at a high price point – and that is particularly damaging to the brand; it will take time and a coordinated media push to overcome both the pricing increases and quality issues.

Hermès  – at least for now – seems to have better control over its suppliers and manufacturers. Yes, they have also raised prices, but that seems to be somewhat less of an issue since their prices have long been higher for their signature products than their competitors. Plus, they maintain a tight control of their product on offer, making exclusivity a key brand strategy.

Let’s Wrap This Up

Of course, other heritage labels are facing similar challenges as LV; Burberry, Ferragamo and Mulberry are also experiencing this inconsistency between product categories, trouble developing pricing strategies and product that is of questionable quality. And just like LV, it’s impacting their bottom lines. Unfortunately, there are no quick fixes; the only way to address these issues is by focusing on aligning departments with brand values, focusing on craftsmanship, materials and techniques, developing new pricing architectures, and developing a cohesive marketing strategy.

Cover Image: Louis Vuitton Paris Fashion Week Womenswear Fall/Winter 2018/2019. Image courtesy of FashionStock.com / Shutterstock.