Underperforming Brands
South Korea was the world’s largest luxury goods consumer in previous year with an average spending of US$325 per person (as estimated by Morgan Stanley), surpassing the United States and China to rank first globally. However, the situation has significantly changed this year due to the economic downturn.
According to industry sources on July 17, sales of luxury goods in major department stores are experiencing a decline compared to the same period last year. There is a mixed atmosphere among the “luxury tribe,” those who frequently buy luxury goods, with a growing trend of selectively choosing high-value items, leading to varying fortunes for different brands.
Although the luxury tribe has reduced their overall consumption, purchases of must-have brands have continued. Among Hermes, Louis Vuitton, and Chanel – all considered epitomes of high-end luxury – Hermes showed the highest sales growth rate, in the 20% range.
Hermes’ standout growth during market adjustment is attributed to its successful reinforcement of its image as the “luxury among luxuries.” In response to the increase in resale transactions, Hermes established a resell prohibition clause in March last year and has been most proactive in dealing with the resale boom. The company is famous for selling popular products only to customers who meet certain purchasing criteria. Through these measures, Hermes has achieved its internal goal of maintaining an annual sales growth rate of 20%.
Dior also achieved impressive growth. With a sales growth rate in the 30% range, it had the best performance among the top five luxury brands, including Gucci. Dior is led by Delphine Arnault, the eldest daughter of Bernard Arnault, chairman of Louis Vuitton Moët Hennessy (LVMH) and considered a leading contender to succeed him. South Korea is regarded as one of the countries where Dior is making the most significant investments. This includes increasing the number of department store locations from nine in 2017 to 26 and stunning the luxury industry by opening a large flagship store spanning 1,500 square meters in the luxury-focused Seongsu neighborhood of Seoul.
In contrast, Chanel and Gucci were mentioned as the most underperforming brands in the first half of this year. Chanel, which had maintained a double-digit sales growth rate from 2020 to 2022, saw a sharp drop to 6%. Gucci was the only brand among the top five luxury brands to experience negative growth (-8%).
The prevalent analysis within the industry suggests that Chanel’s image was tarnished by an active resale market. A perception that Chanel has become a brand purchased on online second-hand trading platforms, rather than in boutiques, has emerged.
Gucci’s decline is attributed to its failure to respond to trend changes. Alessandro Michele, who was Gucci’s Creative Director (CD) from January 2015 until last year, led the brand’s heyday with designs featuring its logo prominently. However, the brand’s performance has declined in recent years as the “minimal trend” has gained momentum.
Such brand performance trends are similarly observed globally. An overview of the first quarter results of major luxury brands showed that LVMH, led by Dior, and Hermes saw double-digit sales growth of 11% and 22% respectively, while Kering Group, impacted by Gucci's underperformance, saw an increase of only 2%.