Last week fashion made headlines when Michael Kors prepared to buy Jimmy Choo in a $1.2 billion deal. That story was only one example of how affordable luxury and brands with middle market pricing are quickly dwindling.
You may be surprised to know that the current most successful fashion house is Gucci. Despite the hefty price tags Gucci has never been more profitable or more in demand. Within just the first six months of 2017, Gucci reported a 43.4% increase in sales. So, in less than a year Gucci has already grown its sales by almost half what they reported in 2016.
Gucci’s success is not surprising when considering their unique ability to appeal to their consumers, particularly those under 25. Younger generations have become very interested in high end luxury and are willing to spend money on brands like Louis Vuitton or Gucci. Whether they’re saving up their money or asking their parents for these pricey goods, there’s no denying that millennials want these designer items for themselves.
Gucci has catered to their young consumers by adding embroidered appliqués to their products such as purses with the phrases “LOVED” and “BLIND FOR LOVE” stitched across. Gucci also brilliantly expanded their collection of loafers by adding graphics to them. Who would buy a pair of loafers with red and orange flames stitched onto them you ask? I can find you ten twenty-somethings that would trade their iPhone for a pair in a second.
While Gucci and other similar brands soar, affordable brands such as Coach, Kate Spade, and Ralph Lauren are struggling to hold on. In May, Coach announced its plans to buy Kate Spade for $2.4 billion. According to CNN, Coach’s sales reached its peak in 2013 and then steadily decreased in 2014 and 2015. Kate Spade’s sales hit a three year low in December 2016. Coach also purchased popular luxury shoe brand, Stuart Weitzman back in 2015 for $574 million. By purchasing other brands, Coach hopes to save themselves $50 million annually and boost profits by combining supply chains and management.
So, why doesn’t anyone want to spend money on affordable luxury?
It seems that people are either spending their money on low priced brands, which explains Zara and H&M’s profit increases, or splurging. China’s consumerism also has a lot to do with luxury brand’s profit increases. Designer items in China can cost 50% more than they do in other countries due to import tariffs and consumption taxes. Simply put, people from China can get a lot more for their money by buying items outside of their country.
European and American luxury brands have taken note of this shift and are responding to it. For example, Louis Vuitton just collaborated with skateboarding company, Supreme for a collection that quickly sold out. One of the collection’s items was a LV monogrammed skateboard enclosed in a trunk that came with a price tag of $59,000. Chinese consumers who already own all of the staple pieces love items that are exclusive or can become collector’s pieces. While Louis Vuitton’s collaboration with a skateboarding company may seem odd, their quick sell out proves that they knew exactly what they were doing.
As affordable luxury brands struggle to stay afloat, we are interested to see what shifts will occur in the market and the results these recent buyouts will produce.
As of now only one thing is certain, if brands want to increase revenue they should take a page from Gucci’s book.