Luxury brands navigate downturn by trading allure for affordability

The numbers don’t lie. Six years ago, husband and wife Tom and Ruth Chapman banked £400 million ($505.6 million) from the sale of their luxury online fashion retailer Matches to Apax Partners. Last month, Apax Partners, a leading private equity house, sold Matches to Mike Ashley, the UK’s pile-it-high, sell-it-rag-trade king, for just over £50 million.

It’s not as if Matches has gone off the boil in the intervening period. Their carefully curated product range, website design, personal level of service, quick delivery – they are all as strong as ever.

Matches is merely reflecting what is going on in the sector. Rival Farfetch has had to secure emergency funding and seen 90 per cent wiped off its market value over the past two years; Mytheresa, another e-commerce designer platform, is admitting to enduring the worst market conditions since 2008; Matches’ arch-rival Net-a-Porter is also struggling.

The downturn is not confined to digital. The glamour labels’ bricks-and-mortar boutiques are also suffering. All told, the world’s fashion houses and the high-end e-commerce sellers have taken a $270 billion hit on their market values in the past few months.

Moet Hennessy Louis Vuitton, or LVMH, the world’s largest luxury goods combined, has seen its worth slump by $150 billion, meaning it is no longer Europe’s most valuable company – a position bestowed on Novo Nordisk, the Danish weight-loss drugs manufacturer.

Yet, the fashion houses’ sumptuously appointed stores line shopping malls and the glitziest retail addresses in the planet’s major cities, their glossy advertising, photoshoots and extravagant catwalk shows still ooze success; they continue to entice, to promote a heady cocktail of detail, sensuality and ambition.

Accompanying that sense of detachment is their pricing. Paris-based data platform Luxurynsight calculates that prices of luxury goods have risen 32 per cent since 2019. Checks around the world’s smartest windows confirm the trend: Chanel’s famous 2.55 handbag, up from $5,800 in 2020 to $10,200; Prada’s Galleria bag has climbed from $2,750 to $4,300; and Louis Vuitton’s Speedy 30 handbag is $410 more expensive at $1,160.

They maintain the hikes are justified, that high-quality materials, labour and delivery costs have all increased.

The timing, though, perhaps tells another story, which is that the rises coincided with the pandemic, when stay-at-home, bored shoppers indulged in retail therapy while sitting on their mobiles or laptops or they waited for lockdowns to lift before going on a spending spree. Global sales surged and the houses took advantage.

But the outbreak has long gone and consumers and the markets have moved on since those dark, unpredictable days.

What’s occurred since is that the world has taken a financial bath.

Inflation, not Covid-19, is now endemic, further driven by Russia’s invasion of Ukraine which has pushed up fuel bills. The Israel-Gaza conflict has added to the uncertainty. Interest rates are high, to try to stall rising prices.

Chinese economic growth has slowed, driving a dent in the global luxury brands’ prospects. China’s influence on worldwide demand in their market is immense – good when Beijing is buoyant, accounting for a third of sales, less so when growth in the Asian powerhouse hits the buffers.

Households, even wealthy ones, are minding their outgoings and where they can, cutting back.

So, where does that leave the designer labels? Marooned between charging high prices (they can do some discounting but not much, for fear of lessening their value and exclusive cachet) and a slowdown.

It may be that this is a blip, that soon the onward march of luxury will resume. It’s also the case that the marques have been brought back down to Earth, to join the rest of the world and a period of flatness may not do them any harm.

LVMH, for instance, may not be worth as much as it was but equally it is not disappearing – it’s not as trendy as it once was, that is all, but it is still very much alive, still catering for the elite and remains one of Europe’s corporate behemoths.

The labels may sit tight, batten down their hatches and ride out the storm. Some outlets in shops and e-commerce could disappear.

Intriguing is the suggestion, made by Jonathan Siboni, chief executive of Luxurynsight, that they will follow the luxury carmakers and bring out cheaper strands and products – same as Porsche, home of the iconic and expensive 911, launched the more budget-aligned Boxster, Cayman and Macan.

There is proof the shift can work – witness the collaboration of Omega and Blancpain with Swatch. The models bearing the stellar marques are flying out of Swatch’s shops. They’re priced higher than an ordinary Swatch but much lower than an Omega or Blancpain and they carry that all-important top-end name and attention to detail.

There are, and will be, more, across all areas. The labels will look to strike a balance between keeping their allure and ensuring quality does not suffer, while making themselves more accessible to those who are not prepared to spend so much but are seeking something affordable, aspiring to own their items and display their names.

Exclusive, but not so exclusive – it could be the way ahead for the next few years at least, as luxury goods become more reflective of the times.