Luxury brands bet on $160 lipsticks and $1,400 accessories to combat industry slump
News Summary
Facing an industry-wide slump, U.S. tariffs, and cost pressures, luxury brands are introducing less pricey products to attract new consumers and remain relevant. Louis Vuitton recently launched its beauty collection, featuring $160 lipsticks, while brands like Coach and Longchamp are also offering extravagant bag charms, including a $1,420 option from Louis Vuitton. Analysts note this is a re-adoption of a successful playbook from the 2015-2016 industry softness (amid a dip in Chinese demand), where brands expanded into streetwear and smaller accessories to attract millennial consumers. By using lower price entry points such as beauty, perfume, and small leather goods, brands aim to grow their total addressable market (TAM), increase cultural relevance, and build brand loyalty among younger consumers, hoping they will move up the value ladder as their income grows. LVMH's CFO confirmed this strategy, emphasizing onboarding younger generations through accessible categories without diluting the brand's premium image. However, the success of this diversification in the current economic climate remains to be seen, as aspirational consumers are more economically sensitive.
Background
Since 2022, the luxury sector has faced growth challenges, following a COVID-era boom, due to consumer fatigue with steep price increases, an industry-wide slowdown, U.S. tariffs, and broader cost pressures. To navigate these macroeconomic headwinds, luxury brands are drawing on past strategies, specifically diversifying into more accessible price points like beauty products and small accessories to broaden their consumer base. According to a 2022 Bank of America Securities report, the sector's future growth hinges on three factors: doubling the total addressable market (TAM) with new products, increasing cultural relevance, and ongoing brand reinvestment to enhance desirability. This strategy particularly targets younger customers, who are expected to control a greater share of global wealth and consumption power as intergenerational wealth transfers and incomes grow.
In-Depth AI Insights
Is the strategy of luxury brands attracting new consumers through "accessible luxury" products sustainable, or is it merely a short-term reaction to current economic headwinds? - This is a dual strategy. In the short term, it addresses the global economic slowdown, U.S. tariffs, and tightening consumer spending by broadening the customer base. Luxury beauty and accessories typically boast high gross margins, helping to shore up profitability when core high-value product sales face pressure. - Long-term, it's about future-proofing the brand by engaging younger consumers early in their career or wealth accumulation journey to build loyalty. Brands hope these consumers will gradually upgrade to more expensive items as their disposable income grows, securing future growth. How do brands balance expanding market appeal with maintaining their inherent exclusivity, especially during an economic downturn? - The risk lies in brand dilution and a perceived loss of exclusivity among high-end clientele. Past examples, such as Burberry and Gucci's aggressive discounting, illustrate how losing exclusivity can lead to long-term reputational struggles. - Mitigation strategies include: strictly segmenting accessible products (like beauty) from core high-value lines, leveraging celebrity creative directors (e.g., Pat McGrath) to attract specific followings, and emphasizing the "luxury" quality and premium pricing even for entry-level items (e.g., $160 lipsticks are far from cheap), striking a nuanced balance between accessibility and high-end positioning. How might the "treatonomics" trend of smaller luxuries impact the future profitability of the luxury sector amidst ongoing tariff pressures and global economic uncertainty under President Donald Trump's administration? - The Trump administration's trade policies, including tariffs on imported goods, have increased operational costs for luxury brands and potentially limited their flexibility in global supply chains. This pushes brands to seek internal growth strategies, such as boosting sales through high-margin beauty and accessories. - Given that consumers tend to be more cautious with spending during economic uncertainty but still desire psychological gratification, "treatonomics" capitalizes on this behavior. Smaller luxury items, while still expensive, have a lower entry barrier than larger luxury goods, potentially becoming the go-to indulgence for consumers under economic pressure, thereby supporting industry revenue to some extent. - However, the long-term success of this strategy depends on an improving macroeconomic environment to sustain purchases from aspirational consumers. If an economic downturn deepens, even demand for smaller luxuries could be severely impacted, challenging brands' profitability expectations.