To begin with, the strategy of relying on “heritage” brands that have been around for 50 or 100 years is losing its effectiveness. Fashion and design houses with long histories, such as Gucci, Hugo Boss, and Dior, have continuously reinvented themselves over the years. However, they are finding it increasingly challenging to remain relevant.
Furthermore, there is a rise in competition from upscale brands in Asia. While Europe has traditionally held a stronghold in luxury, it can no longer expect to dominate the market indefinitely. Vogue recently spotlighted seven up-and-coming Chinese fashion designers, with more emerging talent from countries like South Korea. European designers from decades past may not retain their hold on high-end consumers forever.
This shift in the market could be a contributing factor to declining sales in China, rather than a simple decrease in overall demand. Just as local car companies have replaced Western brands in the Chinese market, handbag manufacturers may soon face similar challenges.
Lastly, the conglomerate model championed by LVMH and similar companies like Kering is losing its innovative edge. While consolidating a diverse range of fashion and design houses under one entity has proven successful in the past, this model may falter as conglomerates face internal challenges like bureaucracy and lack of focus.
Instead of continuing to centralize control over multiple brands, the next decade may see a shift towards breaking up these conglomerates by corporate raiders. The luxury boom of the past three decades, driven by demand from Chinese and Middle Eastern buyers for high-priced items like handbags and watches, may be coming to an end.
Currently, this model is facing more pressure than it has in years, with the bubble potentially burst for the foreseeable future – or even permanently.
