The luxury market on the decline

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The luxury market on the decline

Published: 27 Nov. 2024, 19:31

Kim Chang-gyu
The author is the editor of economic news at the JoongAng Ilbo.

Israeli authorities last month released footage of former Hamas chief Yahya Sinwar and his family after the killing of the mastermind behind the Islamist militant group that controls the Gaza Strip. They showed him and his wife, Abus Zamar, helping their sons hustle through a narrow bunker hallway on Oct. 6, 2023 to escape massive retaliatory attacks from Israel. What drew the most spotlight was the black leather bag his wife was tightly holding — a black Hermes Birkin bag estimated to cost around $32,000. “While Gaza residents have no money for food, we see many examples of Yahya Sinwar and his wife’s special love for money,” an Israeli defense spokesman wrote on X in an attempt to demean the much-loved Palestinian leader amid the Islamic movement of lionizing him to be a martyr. Using a luxury bag to cook up wartime propaganda underpins the universal craze for luxury brands.

It has been a longstanding belief that the luxury market is recession-proof, but the latest signs are poised to upset the theory. Once a British fashion pride of 168-year history, Burberry was dumped out of the FTSE 100 index in September after 15 years on the London market’s top shelf.

It has fallen out of the largest 100 capitalized stocks to the lower-tier FTSE 250 after its share price slumped by almost half this year. The high-end fashion house logged an adjusted operating loss of 41 million pounds ($50.67 million) for the fiscal April-September period, reversed from a profit of 223 million pounds a year earlier, largely due to the slump in the Chinese market that accounts for 30 percent of its sales. The fashion label is now rumored to be a takeover target.

And it’s not just Burberry. LVMH, the world’s largest luxury conglomerate behind Louis Vuitton and Dior, reported a 3 percent on-year drop in its third-quarter sales. Kering Group, which owns brands like Gucci and Balenciaga, suffered a 16-percent plunge in sales during the same period. Others are no different. Sales fell 7.2 percent for Salvatore Ferragamo and 7 percent for Ermenegildo Zegna. Consulting firm Bain & Company projects the high-end goods market will shrink 2 percent year-on-year to $381 billion, the first fall since the global financial crisis of 2008 excluding the pandemic year of 2020.

Luxury labels competitively upped their prices since the pandemic. The bump-up that took place about once a year in the past came twice or three times, and later three to four times. They enjoyed the pent-up demand amid lush liquidity from worldwide stimuli measures during the pandemic. Long queues forming before the shops opened were a common sight.

Limited editions or hard-to-get items were sold at a premium. The frenzy made the sellers proud, reinforcing the tenet that shoppers will buy no matter the price. They kept shoppers waiting two to three hours for their turn. Some demanded to see their identification to enter showrooms and denied “blacklisted” customers. Those in the waiting line were asked to provide personal details as well as where they worked. If they refused, they were turned away. Customers were browbeaten instead of being serviced. Some attributed the phenomenon to a bandwagon effect of the middle-class emulating the consumer choices of the rich.

But now, mundane shoppers have finally turned their back. The luxury market lost 50 million consumers over the last two years. The estimated consumer base has shrunk to 400 million. The hemorrhage was biggest for Gen Z, born between 1997 and 2012, which can spell trouble for the luxury market’s future. Consumers have become more watchful of their spending amid an economic slowdown and feel that luxury items are too expensive. Forbes pointed out consumers have noticed that prices for the same products have nearly doubled in three to five years, while their quality has deteriorated.

In the 1990 film “Pretty Woman,” the heroine is turned away from a Beverley Hills shop because she is modestly dressed. This type of scene also happened in contemporary times. Bethenny Frankel, a former “Real Housewives of New York City” star and influencer, recently claimed she was barred from entering a Chanel store in Chicago because she was wearing a sweaty T-shirt and had not booked a visit in advance. When she returned the following day clad in luxury black suit, she was able to walk right in. Though Chanel may be “a beautiful brand with timeless classic pieces,” Frankel said that “being kind to customers of all socioeconomic backgrounds is also timeless and classic.” The sellers should pay heed if they do not want to lose more customers.

Translation by the Korea JoongAng Daily staff.