How luxury is likely to fare in 2023

Despite the headwinds facing retailers (inflation, recession, supply-chain crisis—you’ve heard it all before), luxury brands have remained somewhat resilient.

• LVMH, for instance, notched 21% in organic revenue growth reaching $37.8 billion in the first half of 2022 compared to the year before.
• Likewise, Capri Holdings, parent company of Michael Kors and Jimmy Choo, reported overall revenue growth of 15% to $1.36 billion during that period, per CNBC.

Still, as we head into the new year, experts Retail Brew spoke to say even luxury brands need to prepare for an uncertain global environment fueled by dampening consumer sentiment and rising product prices that may alienate “young earners,” Swarooprani Muralidhar, senior analyst at Coresight Research, told us via email.

It’s why it’s more important than ever for brands to stay on top of trends and happenings that will impact the luxury industry in 2023.

Party in the USA

While markets like China remain bound by recurring zero-Covid policies, the US, armed with its growing population of affluent consumers and brand awareness, is likely to drive global luxury sales into the future, Muralidhar said.

She also foresees major luxury groups furthering their investment in their US store networks. “As many working and affluent Americans moved from metro cities to smaller cities and suburbs during the pandemic, they continue to shop locally,” she said. “Several luxury brands are meeting these consumers where they are and opening stores in smaller, suburban locations.”

Still, there are those who believe it may not be wise to sleep on China despite the current circumstances. Brian Ehrig, partner in the consumer practice of consulting firm Kearney, told us in an email that while Chinese and Japanese consumers are not “back in full force” yet, “we will see travel retail come back in 2023.”

“If this happens, watch out…there won’t be enough supply and we could see prices rising and bidding wars for luxury items,” he said.

All that glitters

Speaking of luxury items, we all know not all sectors perform as well as others. While both footwear and clothing will likely bounce back as travel and social engagements pick up, jewelry and watches will be the real winners.

• According to McKinsey’s 2021 report, the jewelry market is predicted to grow between 3% and 4% per year until 2025, while the watches segment will see growth between 1% and 3% per year. 

“We think these categories will continue to be attractive as they are not only avenues of consumption but investment as well,” Muralidhar said, adding that in “a volatile economic environment, when financial investment products appear to be unstable, watches and jewelry tend to provide a semblance of strength.”

Resale is king

2022 was undoubtedly the year of resale, as several high-end as well as affordable brands ventured into the territory either by partnering up or launching their own secondhand platforms.

For instance, Coach launched a program called (Re)Loved in July 2021, allowing customers to trade in their used Coach handbags for store credit at select North American stores. Gucci and Valentino have both launched vintage product resale projects that curate, restore, and sell previously owned items from the brands. Then there’s the likes of Sandro that have also invested in the sector.

And in 2023, the trend will only continue, Muralidhar said. “As luxury brands grow their attention toward sustainability, we think they will increasingly adopt and facilitate resale, enabling circularity,” she said.

High-tech

And while brands strategize for success in the new year, relying on technology may be more important than ever.

Both AI and blockchain have been dominant within fashion last year as designers, such as Rebecca Minkoff, debuted CGI shows or launched products in the metaverse. Given the ever-changing economic factors, luxury businesses will have to stick close to these technologies in order “to be more agile and pivot quickly in the face of disruptions,” Muralidhar said.

As customers return to the store, she added, technology can be imperative in making the in-store as well as omnichannel shopping experience “more convenient and personalized.”

“On the supply side, too, investing in high-tech, luxury-specific supply-chain applications will not only allow businesses to grow control over supply networks, but will also help luxury brands and retailers to gain greater visibility of their operations,” she said.

Nothing like a good experience

But regardless of how closely businesses abide by these rules, some things will not change like a good customer experience and understanding your consumer.

Michael Prendergast, managing director at Alvarez & Marsal’s Consumer Retail Group, told Retail Brew that brands should “watch customer patterns but continue to play the long game and not chase the market if retail softness begins to creep into the luxury world,” he said via email. “Said more simply…stay the course!”—JS