The luxury industry experienced an incredible growth period in the post-COVID seasons, all while the recent luxury stocks reflect concerns amid a slowing pace in US and China. The two years post covid have been marked by a “renaissance” season, that appears to be slowing. With a conservative outlook projection for 2023 ( BCG x Altagamma “True Luxury Global Consumer Insight 2023”), the industry is expected to witness a +7-9% year-on-year growth rate, reaching €580 Billion in 2030. The previous inertia continues in China as the the luxury market is poised to keep its momentum, with an optimistic estimate of +20% yoy growth compared to 2022.
That said, the luxury market is characterized lately by a notable dominance of a few mega brands, such as LV, Dior, Hermes, Chanel, and Gucci among others (despite its latest creative turmoil). The brand legacy, global distribution networks, substantial marketing investments, access to the best talent, and overall financial muscle have solidified these brands as industry titans making it challenging for smaller brands to compete on the same scale.
These mega-brands are set to grow at a rate much faster than the market, as LV has just hit the 20 billion revenues mark. While the overall growth may be slowing, the challenges double for smaller luxury brands. So, what options are there for scale-ups, who are not billion-dollar brands yet?
How can they navigate and successfully “play” in a market structure dominated by brands that appear to be "too big to fail"?
Owning Distribution
The first area of focus for these scale ups should be distribution and therefore sales (as for every other business out there). Controlling distribution emerges as a pivotal factor particularly for medium-sized luxury brands in establishing their distinct identity and converting branding efforts into recurrent sales.
Going direct-to-consumer (DTC) however is not an easy feat, but it’s worth the effort. As we discussed in the Sezane Case Study, DTC is often the only option available for brands to fully own and control their margins, curate their image, and have a platform designed to showcase its product offering and merchandising at its very best.
A directly operated store whether online or offline, alongside being a “profit center”, is also an important “experience center”. This should not be overlooked, as it offers a space where clients can be fully engaged with the brand and those long-term relationships can be deepened.
When we look to the big names, distribution arises an invaluable asset in cementing ones place within the luxury world. "If we compare Vuitton, Chanel, and Dior to Armani, Versace, and Valentino, one of the most important differences that stands out is the ability of the Parisian mega-brands to control distribution." - Luca Solca, How Big Luxury Dominates Fashion.
To go DTC, scale up brands, also have the opportunity to explore innovative distribution models, such as temporary stores, pop-ups, and smaller “concept store” venues in the "luxury" neighborhoods that are just around the corner. Not everyone needs to be on Via Montenapoleone (nor does everyone who is there make a profit, as we all know).
Thus with the right strategy, and a bit of creativity, scale-ups do have the opportunity to find their unique distribution positioning, even in this crowded luxury arena, but most importantly they can find a business model that works for them, that allows them to grow, scale, and do it profitably.
Marketing Acceleration
Millennials and Gen Z collectively represent a worth of approximately 210 billion dollars in 2022 (a doubling since 2016) and are expected to nearly double again by 2026. This segment of consumers holds immense significance for the industry, as they exhibit distinct preferences for interaction and technology adoption.
At this point in time, every company is a media company. This means thinking about your brand as a broadcaster and having an organic omnichannel distribution strategy. In order to succeed you must have consistent interactions with consumers through various channels, each interaction weaving together the story of your brand. It also enables brands to control their brand narrative, share valuable content, and create an engaged community around their products or services. By focusing on building a long-term strategy and leveraging owned marketing channels, brands can cultivate brand loyalty, foster customer advocacy, and adapt to changing market trends more effectively.
For smaller brands with limited budgets, a strategic approach is even more vital for scaling as it allows them to maximize their marketing efforts. A proper marketing strategy, is crucial to stand out in a competitive market, includes having a well-defined plan and clear vision. In the digital age, where visual content dominates all platforms, high-quality content plays a significant role in converting sales and telling a compelling brand story. By delivering a polished and professional image, smaller brands can create a positive perception, build credibility, and increase the chances of converting leads into sales.
Investment Strategy
Investing in marketing and distribution is crucial for the success and scaling of any business. It is important to have a well-defined budget for sales strategy evolution and marketing initiatives. There are two viable options to consider when it comes to funding these activities. The first option is to allocate internal funds, which allows the company to retain full control over the marketing and distribution processes. This approach requires good financial management and a well-built business model to fuel marketing activity with own clients and sales, with the advantage of being able to work at own rhythm.
On the other hand, the second option involves finding a proper partner through external funding. This can be beneficial in terms of accessing additional resources and expertise, as well as accelerating growth plans. When you receive external funding the expectations of growth require a much more aggressive approach. As seen in the examples of our blog post about brands with an aesthetic touch and global ambitions.
Partnering with the right external entity can bring fresh perspectives and provide the necessary financial backing to effectively execute marketing and distribution strategies.
Ultimately, the decision between these options should be based on the company's unique circumstances, goals, and available resources.
If you are looking to accelerate your marketing activities with a strategy that will convert, drop us a line at hello@flamestrategy.com.