(AD)👨‍🏫Q3 2024 Luxury Brand Performance: Issues and Solutions

Newsletter Contents 📮

Exploring Performance, Challenges, and Solutions.

As we near the end of the year, the Q3 2024 performance results for luxury brands have been released. The overall luxury market has shown lower-than-expected results, bringing attention to the industry’s growth slowdown and a decline in consumer spending. Major luxury brands like LVMH, Kering, and Hermès are each facing unique challenges and contemplating various strategic directions. There’s growing interest in how these brands can regain their growth momentum and capitalize on new opportunities.

While the luxury industry is unlikely to collapse, it must stay vigilant against market stagnation and slow growth. In this piece, we’ll first provide a brief overview of Q3 2024 performance for key luxury companies, then discuss the factors the industry must revisit.

LVMH

LVMH reported Q3 revenue of around €19 billion, down 4.4% year-over-year. Notably, its Fashion & Leather Goods division saw a 6.1% drop, while the Watches & Jewelry segment declined by 5.4%. Despite this downturn, LVMH continues to reinforce its market presence with its flagship brands like Louis Vuitton and Christian Dior maintaining market share.

Kering

Kering’s Q3 revenue dropped by 15% year-over-year to €3.786 billion, with Gucci experiencing a steep 25% decline. This was mainly attributed to slowing demand in the Asia-Pacific region, including China. Yves Saint Laurent also reported a 12% decline, though Bottega Veneta posted a 5% growth, indicating relatively stable performance.

Hermès

Hermès was the only brand to report growth, with Q3 revenue reaching €3.7 billion, up 10% year-over-year. The brand’s Leather Goods and Saddlery division grew by 12.7%, largely due to its focus on high quality and its VIP-centric strategy. Hermès’ consistent growth highlights the importance of a loyal customer base, even amid a broader industry downturn.

Tapestry

Tapestry’s Q3 2024 revenue was $1.482 billion, a 2% decrease year-over-year. While its core brand, Coach, performed well, other brands like Kate Spade showed weaker performance. Internationally, Tapestry saw growth in China and Europe in Q2, though in Q3, revenue in China declined by 2% year-over-year due to the base effect of last year’s strong "revenge spending" trend.

Refocusing on Core Target Audience

Brands need to reassess their core target demographics. Middle-tier luxury brands, in particular, should maintain price accessibility for their loyal middle-class consumers. For instance, under the leadership of new CEO Joshua Schulman, Burberry has been attempting to expand its customer base and increase accessibility by adjusting product prices and expanding entry-level offerings. Tapestry’s Coach brand serves as a good example, repositioning itself from “accessible luxury” to “expressive luxury” and successfully targeting Gen Z and Millennials.

Enhancing Transparency and Product Quality

Consumers highly value transparency and quality. Recent controversies over labor exploitation in some luxury brand production facilities in Italy have heightened the importance of transparency. Brands should publicly share details of their production processes and prioritize quality control to reinforce consumer trust. This is essential in maintaining the value and loyalty that consumers associate with luxury brands.

Enhancing Luxury Service through Improved Customer Experience

With the growing importance of offline stores, it’s essential to revisit the core essence of luxury. Luxury fundamentally lies in "the quality crafted through artisanal craftsmanship" and "an unforgettable customer experience." Especially, the exceptional service that customers receive from brand staff becomes a medium through which the brand’s value is conveyed. Elevating the level of customer experience directly contributes to brand loyalty and sales growth, making it a critical factor for sustainable growth in luxury brands. However, it is no easy task for luxury companies to regularly implement and manage employee training programs internally.

To address these challenges, professional customer service training institutes like the Luxury Business Institute (LBI) offer structured programs to improve the service quality of luxury brand employees and enhance the premium experience within stores. By providing tailored service enhancements for luxury corporations and brands, LBI aims to boost both brand image and sales. This approach ensures that the fundamental element of "customer experience" in luxury is effectively delivered at every touchpoint between the brand and the customer.

Exploring New Global Markets

Luxury brands should shift their focus toward emerging global markets with significant growth potential, such as India, the Middle East, and Southeast Asia. India, for example, is expected to have a middle class of 500 million people by 2030, presenting a massive pool of potential luxury consumers. According to PwC, Middle Eastern luxury consumption is growing at an annual rate of over 6%, and Southeast Asia’s luxury demand is surging due to internet penetration and economic growth. These statistics highlight substantial growth opportunities for luxury brands entering emerging markets, thereby reducing dependency on China.

To regain growth momentum, luxury brands must focus on redefining their target audience and enhancing transparency and quality in production. Mid-tier luxury brands should consider maintaining price accessibility to strengthen loyalty, while improving customer experience quality through luxury service enhancement is crucial. Furthermore, expanding into emerging global markets offers fresh growth opportunities. These strategies will play a key role in ensuring sustainable growth and long-term success for luxury brands.

◾ 8 Essential Principles for Providing Luxury Service

◾ 3 Solutions to Overcome Korea's Service Industry Aversion

◾ Why 89% of VIP Clients Leave Luxury Brands — Is Your Brand Safe?

◾ 3-Step Process for Resolving Customer Complaints in Luxury Retail

◾ 5 Training Programs to Prevent Employee Turnover in the Luxury Industry

The attempt by Tapestry, the parent company of American luxury fashion brand Coach, to acquire Capri Holdings, which owns Michael Kors and others, has been blocked. The U.S. District Court for the Southern District of New York ruled that the merger could hinder competition within the "accessible luxury market." The Federal Trade Commission (FTC) regarded this decision as favorable for consumers. Had the merger succeeded, it would have led to the creation of a major player in the U.S. luxury market. However, with this decision, Capri's future prospects have become uncertain. Following the ruling, Tapestry's stock price rose, while Capri's saw a significant decline.

Lotte Department Store's "Time Villas" project is a large-scale investment plan aimed at redefining the future of offline retail. With a planned investment of 7 trillion KRW by 2030, Lotte intends to develop 13 shopping malls across major cities in Korea. Beyond expanding its retail footprint, this project seeks to revitalize local economies and revamp Lotte's overall brand image. Starting in Suwon, the expansion will extend to cities such as Incheon, Daegu, Seoul, and Jeonju, positioning it as a bold response to the rise of e-commerce. Existing stores will also be rebranded under the Time Villas name, expected to inject new energy into Lotte's nationwide retail network.

Shinsegae Group has decided to separate its business divisions, formalizing a "sibling leadership" structure where Chairman Jung Yong-jin oversees E-Mart, and Executive Vice President Jung Yoo-kyung manages the department store business. This restructuring is expected to strengthen each division's specialization and improve decision-making speed. By separating E-Mart and the department store operations, each business can focus more on its core competencies while also creating new synergies through collaboration.

Shinsegae Group's theme park project, "Starbay City," is expected to open new horizons in South Korea's tourism industry. With a licensing agreement with Paramount Global, Shinsegae has secured international-level content and operational expertise. More than just an amusement park, the project aims to be a comprehensive cultural complex, including a theme park, shopping mall, and hotel in Hwaseong, Gyeonggi Province, set to open in 2029. This ambitious project is anticipated to inject new vitality into the Korean tourism industry and stimulate the regional economy, serving as a new model for diversification and global competitiveness in Korean retail.

The evolving consumption patterns of the MZ generation are impacting various industries. Trends such as the preference for whiskey over soju, the rise of niche perfumes, and the growth of the meal kit market reflect a shift toward quality and experience-driven consumption. MZ consumers, who value individuality and a unique lifestyle, are driving the "small luxury" trend, favoring premium products at reasonable prices over high-end luxury items. This shift is becoming a critical consideration for companies in product development and marketing strategy, positioning it as a key trend for the future of consumer markets.

According to global fashion platform Lyst, Miu Miu ranked as the hottest brand of Q3 2024. The brand captivated the public with its elegant color palette and trendy designs. Loewe took second place, followed by Prada in third, and Saint Laurent in fourth. Notably, Alaïa surged 12 spots from Q2 to claim fifth place, showing the most significant growth. Miu Miu's success is attributed to its distinctive design and effective marketing strategies.

MUSINSA has launched a platform enhancement project aimed at entering global markets. This initiative seeks to create a platform capable of agile responses to international markets by implementing the OCMP (One Core Multi Platform) system, facilitating business expansion and synergy. MUSINSA has set a goal to have over 40% of its workforce in tech roles within the next three years. Through this, MUSINSA aims to transform into a platform that connects diverse global customer preferences, extending its reach beyond Korea.

◾ Alo Yoga’s Entry into Korea: A Case of Effective Localization Strategy

Alo Yoga has entered the Korean market by collaborating with BTS's Jin, demonstrating a successful localization approach for a global brand. This strategy takes into account Korean culture and wellness trends, showcasing an approach tailored to the local market.

• Are you planning to open a new flagship store?
• Are you facing challenges in hiring and managing talent in the service sector?
• Is managing service quality in retail or hospitality a challenge?
• Do you need an on-site service quality assessment and solutions?