Luxury brands usually invest heavily in OOH and above the line advertising, alongside in-store experiences. However, the pandemic forced these brands to shift to digital and social advertising. Physical stores have traditionally been hugely important for luxury sales as luxury shoppers expect a high-quality experience and VIP treatment; and to be engaged across multiple touchpoints before their final purchase. Clearly there has been a shift away from this with the rise in ecommerce. According to the FT, the online share of luxury sales nearly doubled from 12% to 22% last year. Bain & Company has suggested that by 2025, 30% of luxury sales will be conducted online, 28% through single brand stores, 14% through outlets, 11% through department stores, 11% through speciality stores and 6% through travel retail. Brands now need to find ways to provide that special, personalised experience to customers in the online space, and will be looking to invest in high quality marketing and advertising to fulfil their expectations. Having been faced with a lack of tourist trade, luxury brands have continued to use experience in their mix with pop-ups aiming to engage local consumers, and physical stores have been revitalised with a digital spin including AR and VR capabilities. Brands such as Balenciaga have taken outdoor advertising to a more premium level by investing in 3D billboards.
Luxury brands are even entering the realm of B2B to reach customers, now spending more money advertising on LinkedIn. According to LinkedIn Marketing Solutions’ senior director for strategic accounts Ann Lundberg, “LinkedIn members are high-income earners, with the highest median household income of any platform’s user base,”. LinkedIn’s 2021 Audience Research & Segmentation Study found that respondents who visited LinkedIn had 14% higher purchase intent for high-consideration goods compared to other social networks and planned to spend 22% more on such goods in the coming year. LinkedIn is a suitable advertising space for luxury brands because high consideration products have longer sales cycles, akin to B2B purchases. These brands can also afford to pay LinkedIn’s higher advertising rates.
A shift in audience
Gen Y and Gen Z consumers are expected to account for more than 70% of the luxury market by 2025, provided brands stick to commitments around sustainability, inclusion and social responsibility which have become an important consideration point for this generation. Luxury brands are trying all kinds of methods to reach young people. Some through acquisitions such as Moncler’s purchase of Stone Island; others through increased collaboration with Gen Z brands such as Tiffany x Supreme and Gucci’s tie-up with Adidas. Also, last year saw Balmain partner with Channel 4 on a branded entertainment series where the acting cast wore its garments, and with Netflix on a collection for western The Harder They Fall. Bulgari recently partnered with BAFTA to promote exclusive high-end jewellery on the red carpet and Fendi collaborated on collections with the likes of Noel Fielding and Kim Kardashian. Aiming to showcase their social responsibility, Hermes launched a vegan leather bag and Pandora stopped selling mined diamonds.
Brands now need to include channels such as TikTok and Twitch in their marketing mix, and to embrace the metaverse, with Burberry, Balenciaga and Louis Vuitton becoming early adopters. Valentino recently worked alongside An Art App to launch an immersive experience that will bring its Rendez-Vous campaign to the metaverse. Luxury brands have also delved into the world of esports with Ralph Lauren following in the footsteps of Louis Vuitton and Gucci to become G2 esports’ exclusive fashion outfitter as well as exploring NFTs. The whole NFT business is currently valued at £2bn and Morgan Stanley has estimated that the virtual luxury goods market could be worth £38bn by 2030. In addition to targeting a younger audience via the right platform, luxury brands need to ensure their creatives showcase diversity and sustainability.
Gartner estimates that luxury brands are currently spending 33% of their advertising budgets on digital marketing and this is set to increase in the coming years. According to WARC, 66% of ad professionals say they plan to increase spend on TikTok this year; 61% stating the same for YouTube, 60% Instagram and 57% Google. Brands will need to invest in the right strategy to help them stand out. 75% of people recently surveyed admitted to ‘feed fatigue’ and that they were paying less attention to online ads due to spending more time online during the pandemic.
With rising inflation, prices of luxury items will also rise this year. Chanel and Rolex have been among brands already hiking prices. Fashion accessories are especially likely to see a steep increase, so brands will need to use marketing to persuade their less affluent customers to part with their pounds. The luxury sector can, however, more easily raise prices by making more expensive items more desirable to the super-rich.
A rise in competition
The luxury market is facing competition through the rise of second-hand platforms such as Vestiaire Collective and The RealReal which have emerged in recent years. Vestiaire Collective has just significantly expanded its reach with the acquisition of US resale marketplace Tradesy. The durability of luxury products means they can be handed on to different owners multiple times, and the sustainability of this practice makes it popular with the key Gen Y and Gen Z market. In 2021, the second-hand luxury goods market was evaluated at £27bn. Luxury brands are looking to maintain control of the second-hand market by penning partnerships with resale platforms, including the introduction of authentication certificates. Last year, Vestiaire Collective secured £154m from Tiger Global Management and Kering. However, brands will need to actively integrate second-hand sales into their own websites to drive traffic and gain insight, as well as take their own sustainable steps. For example, Ralph Lauren has announced a new circular strategy encompassing design, experiences and product. The brand partnered with McDonough Innovation to achieve Cradle to Cradle certification on some of its iconic products including chinos and denim, and it will offer recycling and resale. Elsewhere, Chloé has achieved its B Corp certification.
Luxury brands will have to convince people to keep buying new items and fend off the threat from the re-sale market. The democratisation of luxury means that the ultra-rich will then seek even rarer and more exclusive offerings, opening more potential revenue for these brands.
What’s new in luxury
Luxury extends beyond the famous fashion brands producing clothing, shoes, accessories, cosmetics, perfumes, watches and jewellery to include homeware, cars, hospitality, food, drink, fine art, private jets and yachts. Luxury food is among Friesland Campina’s 2022 global food trends. The pandemic enabling delivery from high end restaurants has given consumers a penchant for the finer things in life and shoppers are now looking for accessible indulgence in their food shops.
In the coming months, luxury brands will be looking to capitalise on the gains made and the opportunities that have presented themselves during the pandemic, and claim market share of the returning tourist trade, thus investing in marketing, technology, and experiences.
Here’s a selection of luxury brands in ALF you should keep an eye on:
Kering’s 2021 annual revenue rose by 35% year on year to £14.5bn, up 13% on pre-pandemic levels. Net profit was £2.6bn. Kering’s brand Gucci was a significant profit driver, bringing in £8bn of revenue, a 10% increase on 2019, thanks to its centenary 100th events and a new collection.
LVMH saw a 36% annual organic revenue growth compared to 2020, and 14% compared to 2019. Sales in its fashion and leather goods unit rose to £25.5bn, up 42% on pre-pandemic levels. Louis Vuitton’s 2021 ad spend was £3.7m while LVMH Watches & Jewellery spent £1.4m.
Hermes’ chief Axel Dumas said it is receiving "very strong demand”. The brand’s 2021 advertising budget was £1.8m.
Last year, Fendi relaunched its partnership with Design Holding called Fashion Furniture Design, to develop the Fendi Casa business that sells luxury furniture and homeware. The brand invested almost £800k in campaigns that same year.
Last year, Sotheby’s named a new director of marketing & strategy for Global Luxury, a marketing director for Fine Art – EMEIA, and a digital marketing manager.
Cartier spent £5.4m on advertising in 2021. Its head of PR moved to jeweller David Morris to take up the role of global head of marketing & communications. Fellow jeweller De Beers named Havas as its media agency towards the end of 2021.
Dolce & Gabbana moved its media business from Carat to Havas Media in December. As part of a plan to diversify its revenue streams beyond fashion amid a boom in high-end fragrance and cosmetics demand, the brand is bringing its €476mn wholesale beauty business in-house. A new Beauty division will take over development, manufacturing and distribution of the brand’s fragrance and make-up products. Dolce & Gabbana will be the first Italian fashion brand to manage its own beauty category in-house. Only a handful of fashion brands, including Chanel and Dior, manage the manufacturing and distribution of their beauty products. The vast majority license their names to third-party specialists. The company forecasts annual beauty retail sales will grow by “more than €1bn” to €2.5bn in seven years generating about €1.25bn in annual wholesale revenue. The new division plans to hire 150 people by the end of the year, eventually building a global team of 350-500 people.
2022 will see former Burberry chief executive Marco Gobbetti join luxury footwear brand Ferragamo which spent £281k on advertising last year and appointed a PR agency in January. Former Versace chief executive Jonathan Akeroyd is taking over from Gobbetti at Burberry in April. Burberry’s 2021 advertising budget was £3.1m.
Aspinal’s advertising investment has been low since 2018. However, the business reported double-digit growth in ecommerce sales and has transformed itself into a predominantly online brand. It is on track for ‘further substantial EBITDA growth for FY 2022’.
Farfetch, the online luxury fashion retailer, reported that its annual revenue increased by 35% year-on-year to £1.71bn. The company hailed 'record' gross merchandise value of £3.13bn for the full year, up 33%, and 98% compared to pre-Covid levels. Farfetch also launched its own brand called There Was One, which was produced with sustainability and longevity in mind and created in collaboration with the New Guards Group. It has since named Mediahub as its global communications planning & media buying partner.
In luxury travel, Mandarin Oriental’s CMO stepped down at the end of last year and was replaced by a new chief commercial officer. In January, the hotel business hired a new PR agency, and in March it announced a partnership with luxury vacation rental membership platform StayOne to launch the new Mandarin Oriental Exclusive Homes division, a collection of hand-picked, luxurious private villas and mansions. Other brands in luxury hospitality include Four Seasons and Belmond.
For more luxury brands in ALF, search for homeware brands The White Company, Ferm Living and OKA; private jet businesses Flexjet, PrivateFly, and NetJets, which has just signed a partnership to purchase up to 150 electric jets to boost its sustainable offering; and high-end drinks Dom Perignon, Piper-Heidsieck, Perrier Jouet, Courvoisier and Chivas.
By Natalie Fedden
Senior Content Executive, ALF
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