The self-inflicted luxury crisis

[El Presidente]

 

https://www.luxurydaily.com/luxury-unfilteredluxury-unfiltered-the-self-inflicted-luxury-crisis/

Luxury Unfiltered: The self-inflicted luxury crisis

October 23, 2024

Daniel Langer is the founder and CEO of consulting firm Équité

 

 

 

By Daniel Langer

 

In the wake of disappointing Q3 financial results from major luxury players like LVMH, Kering, and Porsche, challenging times for luxury brands are evident.

 

In almost all cases, the financial reports are presented in the context of “challenging headwinds, particularly in China.” The key question, though, is what is the root cause?

 

When we investigate the details, it becomes clear that the luxury sector is grappling with a crisis of its own making, not just a market downturn.

 

Poor storytelling
For the last two years, I have published many articles warning that brands that don’t adapt to the rapidly changing expectations of luxury clients will not remain successful.

 

In fact, we are now seeing the biggest divide ever between successful brands growing at significant, often double-digit rates, while others decline, often also in double digits. The polarization between the best brands and the worst-performing ones is increasing.

 

When we work on luxury strategy projects, we always conduct brand and category audits where we go into an in-depth assessment not only of our clients but also of all major competitors. This assessment goes far beyond typical competitive analyses and includes meticulous reverse-engineering of brand stories and assessments of the perception of these stories by luxury clients.

 

Because of this, I have access to probably the most comprehensive brand analytics in the luxury industry across categories. With every brand audit, I can predict the future success of all key players within a category with high precision.

 

Typically, I find three issues that almost always put brands into a nosedive: The number one issue is poor brand storytelling.

 

I estimate that at least 90 percent of today’s luxury brands significantly underperform because their brand storytelling does not create any meaningful client-centric value. Brands that still define themselves through “quality, craftsmanship, and expertise” in today’s world will fail utterly.

 

Therefore, not surprisingly, most of my strategy projects center around retooling brand storytelling to make it client-centric. It is the number one root cause for underperformance.

 

Second, most brands are what I call “luxury in ambition only.” They are well-packaged versions of the ordinary.

 

But luxury, as I have published over many years, is essentially “extreme value creation.” Hence, there is no room for anything but the extraordinary in all aspects.

 

Now I invite you to reflect: when was the last time a brand gave you a truly extraordinary experience that was consistently mind-blowing? Therefore, once we update brand stories, we immediately work with clients on overhauling their client experience strategy so that the brand story becomes tangible in extraordinary ways.

 

Third, and related to it, within organizations, luxury training on identifying the emotional key of clients, on emotional clienteling and on gaining confidence to inspire the world’s most discerning luxury customers is critical.

 

Strategic failure
I am just returning from such a training that I led in India for the client-facing team of a leading global luxury brand. Making people understand the psychology of luxury clients is critical for success.

 

Extreme value creation at all touchpoints only happens when organizations take excellence in every client-centric aspect seriously. But in reality, I still observe too much lip service in organizations – great ambitions and wonderful goals – but because real issues are not solved, most brands don’t generate enough desirability and leave millions of revenue and profit opportunities on the table.

 

This is fatal in a reality where practically all luxury brands increased prices in an unprecedented way without increasing their client-centric value proposition. Many did it because they thought they could and because everyone else did it.

 

Consumers are increasingly questioning the justification for these inflated prices as many brands have failed to elevate their offerings or experiences accordingly. It does not take a genius to understand that this puts many brands into a mismatch between perceived value delivered and prices asked for.

 

Since the value of any luxury brand fundamentally lies in storytelling, any deficits haunt brands even more severely.

 

Another dramatically neglected root cause for the crisis many brands face stems from their inability to engage effectively with affluent Gen Z consumers. This generation is not satisfied with random high-priced goods that carry a fancy logo. They demand meaningful stories, emotional inspiration and experiences that align with their values.

 

Brands that continue to rely on outdated narratives and fail to innovate are simply irrelevant in their eyes. Moreover, engaging Gen Z requires a fundamental shift in how to approach innovation and communication. This demographic expects seamless integration of digital experiences with physical products.

 

Compounding these challenges is the shift in Chinese consumer behavior towards a growing preference for local brands and purchases made outside China, signaling a need for brands to rethink their strategies. Chinese clients still crave luxury. They are just smart enough to understand when brands provide them value and when they don’t.

 

Lean in
As outlined earlier, the heart of the issue lies in the lack of emotional brand storytelling and inspiration. The essence of luxury is not in selling products; it is about taking humans on an emotional journey that transforms their experience, mesmerizes them and creates lasting positive memories.

 

Yet many brands persist with generic stories that fail to differentiate them in an increasingly crowded market, a phenomenon I often call the “sea of sameness.” To navigate this self-inflicted crisis, luxury brands must urgently transform their approach by investing in developing inspiring client-centric brand storytelling that connects deeply with consumer insights and emotional drivers – values and aspirations alike.

 

Engaging Gen Z requires innovation and an understanding of their high expectations for authenticity and cultural relevance. When I discuss this with boards of companies and luxury leadership teams, I still too often see misunderstandings about what brand storytelling truly is. It’s not an advertising campaign or a PR stunt.

 

It’s providing internally and externally clarity on the fundamental emotional brand promise; it’s about defining “what are we really selling.”

 

Now is the time to act decisively to inspire and engage your audience or risk fading into irrelevance. The call for transformation is urgent as many luxury brands stand at a crossroads where complacency is no longer an option.

 

They find themselves here because they don’t generate enough inspiration or desirability at all touchpoints; transformative change is needed now more than ever before. Invest heavily into crafting compelling narratives around your unique offerings while ensuring every interaction leaves customers feeling truly “wowed.”

 

Are you delivering upon promises made within your marketing efforts? Or merely aspiring towards something greater without actually achieving those lofty goals? Be honest. For if not addressed soon enough others will inevitably seize upon opportunities left unclaimed.

 

Luxury Unfiltered is a weekly column by Daniel Langer. He is the CEO of Équité, a global luxury strategy and brand activation firm. He is recognized as a global top-five luxury key opinion leader. He serves as an executive professor of luxury strategy and pricing at Pepperdine University in Malibu and as a professor of luxury at New York University, New York. Mr. Langer has authored best-selling books on luxury management in English and Chinese, and is a respected global keynote speaker.

 

 

[SirVantes]

Does he get paid by the paragraph? Is there a subscriber-only article that explains what “client-centric storytelling” actually means? That could be interesting…or maybe not. 

[Dr Process]

Interesting article. Thanks for posting. Agree that I would like to have a better understanding of some of the terminology referenced. I must say, my personal experience within the luxury watch market does seem to reflect some of what he is saying. I do think the supply/demand mismatch has caused strain in the client-sales associate interaction at most authorized dealers and this has negatively impacted the overall experience. In 2018, I purchased a Rolex.  Sat and talked for a bit with the sales associates about watches and occasion I was celebrating with the purchase. We each had a beer. It was a memorable and pleasant experience. Flash forward to 2022, I was lucky enough to get allocated a watch. the sales associate acted as if she was doing me a favor by allowing me to purchase said watch - needless to say, no beer or champagne included. From her perspective, yeah, I guess she did do me a favor by giving me the watch. From my end, it was kind of awkward.  

Just my two cents. Will be interesting to see where the luxury markets go from here.  
 

Prez, maybe you can toss in a bottle of champagne when someone buys a box. Kidding! 
 

[Chitmo]

1 hour ago, Dr Process said:

Prez, maybe you can toss in a bottle of champagne when someone buys a box. Kidding! 

I’d settle for a punch card, buy 10 get 1 free 😜 

[El Presidente]

13 hours ago, Chitmo said:

I’d settle for a punch card, buy 10 get 1 free 😜 

How I would love to! 

To put it in perspective, my buy price since 2019 is up 200% "ish" across the board, 300% on some. 

I have no idea how some smaller retailers survive. 

2025 people. It is a sliding doors moment for this CC industry. 

[BrightonCorgi]

15 hours ago, Dr Process said:

Just my two cents. Will be interesting to see where the luxury markets go from here.  

I'd expect the luxury market to go further upscale than it is. Safer to cater to even less and keep your brand integrity. Margins are huge. 

What Habanos is doing is a mirror of the whole luxury industry.  

 

[Chitmo]

8 hours ago, El Presidente said:

How I would love to! 

To put it in perspective, my buy price since 2019 is up 200% "ish" across the board, 300% on some. 

I have no idea how some smaller retailers survive. 

2025 people. It is a sliding doors moment for this CC industry. 

Not sure how things are in Australia, but there’s major concerns about the economy here in Canada. The central bank wasn’t expecting inflation to come down for another year and we’ve blown right past that and now the concern is deflation. I can’t figure out any small business are staying afloat at all. Something like 50-60% of the population are using credit just to cover off basic needs. Silver lining is that interest rates are dropping rapidly, there was a 0.5 % cut yesterday and expected to be another in Dec for the same amount. 

[Puros Y Vino]

6 hours ago, Chitmo said:

Not sure how things are in Australia, but there’s major concerns about the economy here in Canada. The central bank wasn’t expecting inflation to come down for another year and we’ve blown right past that and now the concern is deflation. I can’t figure out any small business are staying afloat at all. Something like 50-60% of the population are using credit just to cover off basic needs. Silver lining is that interest rates are dropping rapidly, there was a 0.5 % cut yesterday and expected to be another in Dec for the same amount. 

A lot of people leverage credit to live beyond their means. Marketing of luxury goods, fancy cars, etc draw people into debt. There's a reason that basic financial management isn't taught in our schools at the primary school levels. 🤨 A huge problem in Canada is that we're building condos and homes for the investor class, not for the people that live here. Our economy has always been solid and sane for the most part. That makes it attractive to overseas investors to stash their money, whether legit or ill-gotten over here. Best way to do that? Drive home prices up.

[Chitmo]

1 hour ago, Puros Y Vino said:

A lot of people leverage credit to live beyond their means.  Marketing of luxury goods, fancy cars, etc draw people into debt.  There's a reason that basic financial management isn't taught in our schools at the primary school levels.  🤨  A huge problem in Canada is that we're building condos and homes for the investor class, not for the people that live here.  Our economy has always been solid and sane for the most part.  That makes it attractive to overseas investors to stash their money, whether legit or ill-gotten over here.  Best way to do that? Drive home prices up.

I couldn’t afford to buy my own house now the way prices have gone. 

[BrightonCorgi]

3 hours ago, Chitmo said:

I couldn’t afford to buy my own house now the way prices have gone. 

I wouldn't want to buy my house for what's it's worth now! Prices and interest have made prospective home buyers fickle.