Luxury Brands Shift Strategy to Attract Middle-Class Shoppers with Affordable Products

Luxury Labels Adapt to Economic Shifts by Expanding Lower-Priced Offerings

Luxury fashion houses are pivoting to appeal to middle-class consumers, introducing more affordable product lines as demand for high-priced goods weakens. Items like $500 scarves, wallets, and home accessories are taking center stage, signaling a strategic shift from the usual $3,000 handbags and $4,000 cashmere jackets.

Affordable Luxury Takes the Spotlight

Brands such as Chanel, Prada, and LVMH’s Dior have increased their focus on entry-level luxury items. While this move aims to retain price-conscious aspirational shoppers, it may come at the cost of thinner profit margins.

• Gucci now offers lifestyle gifts like a $440 pet leash and branded sticky notes for $200.
• Louis Vuitton features $360 cardholders and $395 bracelets in its online gift shop.
• Burberry is redesigning store layouts to emphasize “scarf bars,” showcasing cashmere scarves priced between $450 and $1,050.

This shift comes after significant price hikes in recent years. For example, handbag prices soared over 50% in France between 2020 and 2023, according to Wall Street analysts at Bernstein.

U.S. Spending Decline

Credit card data from Citi revealed a 6% year-over-year drop in U.S. luxury spending as of November 2024, setting a cautious tone for brands like LVMH, Kering, and other global luxury retailers. Aspirational shoppers, who drive a significant portion of sales, are tightening their budgets amid economic uncertainty and rising inflation.

Shifts in Global Demand

• China, a major growth market for luxury brands, is grappling with challenges such as a property crisis and high youth unemployment. Analysts from JPMorgan forecast a “bumpy” recovery in 2025.
• Globally, the client base for personal luxury goods has dropped by 60 million, with more consumers opting for experiences over products, according to RBC analysts.

Despite these challenges, some brands are leveraging innovative marketing campaigns and expanding product categories to maintain consumer interest.

Maintaining Exclusivity While Broadening Appeal

Luxury labels face the delicate task of balancing affordability with exclusivity. For instance, LVMH Chief Financial Officer Jean-Jacques Guiony cautioned against introducing excessively affordable products, warning that it could dilute brand prestige.
“Stretching the price range is essential, but we won’t compromise our brand’s exclusive image,” Guiony emphasized.

Conversely, Prada CEO Andrea Guerra highlighted the importance of diversifying pricing, acknowledging that entry-level products are crucial to attracting new customers without alienating loyal clientele.

Profit Margins Under Pressure

Although expanding lower-priced offerings could safeguard relevance among middle-class shoppers, it’s likely to compress profit margins for industry leaders like LVMH, Kering, and Balenciaga. Still, these measures are seen as necessary to navigate an evolving luxury market.

Key Takeaways for Luxury Brands

1. Affordable Luxury Is In: With economic uncertainty affecting spending, affordable options keep brands accessible to aspirational consumers.
2. China’s Influence Remains Key: Economic recovery in China will be critical for the luxury sector’s growth in 2025.
3. Balancing Act: Maintaining exclusivity while catering to middle-class buyers will define success in this new era.

Source: reuters