European Luxury Goods & Specialty Retail: The new rules of luxury

Research evidence excerpt

European Luxury Goods & Specialty Retail: The new rules of luxury

Barclays | European Luxury Goods & Specialty Retail

resale/second-hand platforms could become uncontrollable channels of engagement with

the brands posing risks to brand image and data-based customer relationship management

going forward.

6.6. Returns matter: In our view, with the era of double-digit growth in luxury largely behind us,

the industry structure now calls for tighter cost control and cleaner brand portfolios. In

order to be able to expand margins at these lower growth rates, we think luxury companies

need to strive for a leaner cost structure, efforts towards which we have already seen from

e.g. LVMH.

7.7. Mix first, then price, to drive margins: In order to expand margins without alienating the

consumer, we believe luxury companies should manage mix and get customers to trade up.

This requires a granular price architecture, supported by new entry price products as well as

sufficient offering for high-end consumers. This should allow for recruitment of new

consumers and subsequent trading up, while carefully managing volumes. This should

result in gross margin momentum, higher firepower from marketing spend and ultimately

higher sales.

8.8. Experiences and ecosystem are the new A&P: Consumers today are more sophisticated,

informed and saturated. This is true for all major cohorts. Driving attention back to luxury,

and leveraging appetite for experiences over goods, we believe luxury companies need to

invest in differentiated immersive experiences, such as restaurants and cafes under luxury

brands, museums and exhibitions (Louis ship in Shanghai as an example), branded hotels

and Spas.

9.9. Using the power of AI: Luxury companies need to leverage AI to gain productivity and