How Luxury Fashion Can (And Will) Weather The Cost-Of-Living Storm
The cost of living crisis is impacting consumers across the UK in many different ways. Households are grappling with rising bills, individuals are re-assessing their financial situations, and shoppers are being forced to adapt their buying behaviours.
As consumers continue to struggle with their finances, almost every single industry will feel a knock-on effect from the crisis.
The Office for National Statistics reports that among those affected by the cost of living crisis, around 57% (roughly 26m people) are spending less on non-essentials. This will have an enormous impact on many retail businesses and manufacturers.
But one industry in a particularly unique situation is the world of luxury fashion.
Luxury items are often perceived as sitting firmly in the ‘non-essential’ category, and as these goods are inherently more expensive, it’s easy to see why there’s apprehension about this sector in the short term.
A recent report from EY states that among consumers with an ‘affordability first’ mindset, 79% were less interested in the latest fashions in June 2022 - compare this to just 35% in February 2022, and the picture becomes much clearer.
What key challenges will the luxury fashion sector need to tackle during the cost of living crisis? How can the industry navigate this turbulent economic climate?
What are the main concerns in the luxury fashion industry?
As consumers across the UK tighten their purse strings and make drastic changes to their shopping habits, some serious concerns are looming over the luxury fashion sector.
With non-essential purchases taking a major short-term hit, many immediately assume that the luxury industry will face a crisis of its own.
One of the biggest concerns is consumer preference leaning in favour of cheap fast-fashion items over the quality (and price tag) of luxury goods. EcommerceAge reports that 61% of fashion shoppers are now prioritising price over sustainability, and as the cost of living crisis deepens, this number is only likely to increase.
On top of that, fast fashion already dwarfs ethical fashion in terms of industry size. The luxury sector cannot compete with fast fashion in terms of price and affordability, which may prove to be decisive for many UK consumers.
However, it’s worth noting here that luxury fashion doesn’t necessarily equal ethical fashion.
Although many luxury brands focus on using high-quality materials, there are still plenty of manufacturers that struggle to maintain sustainable and eco-friendly practices. While fast fashion is notorious for pollution and environmental damage, it’s not quite as simple as categorising fast and luxury fashion brands as polar opposites.
Are there signs of hope for luxury fashion during the crisis?
It’s clear that the luxury fashion industry will encounter difficult obstacles as the cost of living crisis progresses.
But there are reasons for optimism among luxury fashion brands and retailers.
It’s important here to acknowledge some of the core differences between everyday purchases and luxury shopping. Every industry will be impacted differently by the cost of living crisis, and the luxury sector may be in a stronger position than many expect.
For example, while 57% of individuals currently struggling are spending less on non-essentials, this may also include cheap and inexpensive fast fashion items.
Luxury goods tend to promise quality and long-term durability and may be perceived as a more worthwhile investment than cheaper goods that won’t last. Additionally, shoppers regularly spending on luxury fashion are likely to be higher earners, and therefore might be struggling less with rising living costs.
It’s also key to remember the long-term effects of the COVID-19 pandemic.
According to Business Of Fashion, “millions of wealthier consumers are still sitting on a cushion of savings built up during the COVID-19 pandemic, and are keen to treat themselves after two years of restrictions.”
While costs may still be rising for wealthier consumers, that doesn’t mean that shoppers aren’t still looking to enjoy their post-pandemic freedom. In fact, statistics from GlobalData state that:
“The luxury apparel market grew by 24.2% in 2021…while this growth is set to slow in 2022 after an exceptional growth in 2021, as the market recovered from its COVID-19 related losses, it will remain high at 10.0% and reach $149.2 billion in 2022, significantly outperforming the global apparel market.”
Rising living costs are a challenge for all consumers - but it’s vital to remember that the luxury fashion industry is appealing to a very different type of shopper.
These individuals are likely to be in a stronger financial position, and therefore less likely to drastically reduce their spend.
Is the fast fashion sector also facing a serious challenge?
Although many are focusing on the future of the luxury goods sector, it’s important not to overlook fast fashion when it comes to the cost of living crisis.
The crisis is affecting retailers from every industry, and fast fashion is no exception.
Boohoo has reported pre-tax profits down 94% from March 21 to March 22, and many other companies are finding themselves in a similar position.
So why is the cost of living crisis putting so much strain on fast fashion brands?
The fast fashion industry revolves around high sales volumes and tight margins. These businesses need to maintain lower prices to remain competitive, but this also means that a small increase in operational costs (or a sudden drop in sales) can be devastating.
It’s not always easy to predict how consumers will react to a difficult economic climate.
While some shoppers may turn to fast fashion for cheaper alternatives, others may cut their non-essential spending entirely, or embrace luxury goods for their long-lasting quality.
The Lipstick Effect theory suggests that consumers will still buy smaller luxury items during a recession, even if they avoid big-ticket purchases.
How can luxury businesses overcome the challenges ahead?
The cost of living crisis presents a complex situation for luxury fashion brands.
On the one hand, luxury businesses may actually have some advantages over cheaper retailers. Luxury items appeal to a very specific audience, and high-earners may still be keen to treat themselves by purchasing high-quality goods.
However, it’s also true that an overall decrease in non-essential spending may result in fewer sales.
If luxury businesses want to remain profitable during the crisis, they’ll need to focus on retaining loyal customers and proving the value and durability of their products.
The Drum claims that luxury companies will need to recognise their current customers as ‘brand ambassadors’ and nurture these relationships with rewards, discounts, and promotions.
KeenPac also suggests that brands should focus on enhancing the overall shopping experience, as the process of buying a luxury item can be just as important to customers as the product itself.
The luxury fashion sector is truly unique, and although premium goods and services come at a cost, that doesn’t necessarily mean that consumers will be losing interest in them.
This financial crisis won’t be an easy time for any retailers - but with the right business priorities and marketing strategies, luxury brands can find a way to weather the storm.