Names like Gucci and Fendi, which come to mind when thinking of luxury fashion brands, have recently reported sharp declines in sales.

Luxury brands have traditionally shown resilience even during economic crises, but they are now facing challenges due to a combination of the global economic environment and changing consumer trends. Let's examine the reasons one by one.

Luxury brands primarily target high-income consumers, but in recent years, the slowdown in global economic growth and ongoing inflation have led to a phenomenon where consumers are tightening their wallets.

• Slowdown in China's Economic Growth: China accounts for about 40% of the global luxury market, but recent real estate market crises and a slowdown in consumption have significantly impacted the sales of luxury brands.
• Energy Crisis in Europe: The European market is also seeing a decline in luxury consumption due to rising energy costs and increased living expenses.

As consumer preferences change, luxury brands are facing new challenges.

• Value Consumption of the MZ Generation: Young consumers are more interested in sustainability and ethical production rather than the history of the brand. Traditional luxury brands like Gucci and Fendi are criticized for not adapting quickly to these changes.
• Growth of the Resale Market: The second-hand luxury market is growing rapidly, with consumers showing a tendency to purchase cheaper second-hand products instead of new ones.

Increased competition within the luxury fashion market is also a contributing factor.

• Rise of Emerging Brands: Emerging brands like Jacquemus and Off-White are capturing the hearts of the MZ generation with trendy designs, increasing their market share.
• Competition with High-End Streetwear: Streetwear brands like Supreme and Fear of God are introducing high-priced lines, blurring the lines with existing luxury brands.

In recent years, the excessive price increases by luxury brands have also been pointed out as a factor in the decline in sales, making consumers hesitant in their purchasing decisions.

• For example, Gucci's handbags have seen price increases of about 20-30% since the pandemic.
• Luxury brands adopt pricing strategies to emphasize scarcity, but in a situation of increased economic uncertainty, such strategies can have negative effects.

In an era where online shopping is becoming increasingly important, some luxury brands have been slow to adopt digital strategies or have not operated them effectively.

• Gucci has invested heavily in digital marketing but has been criticized for lacking communication with its primary target group, young consumers.
• In contrast, LVMH subsidiaries have secured a competitive advantage through successful digital transformation.

With the slowdown in global travel post-pandemic, sales of luxury brands in duty-free shops and tourist-centric cities have also decreased. In particular, the reduction in overseas travel by Chinese consumers has led to a decline in luxury consumption in European and American markets.

The sharp decline in sales of luxury fashion brands like Gucci and Fendi is not due to one or two factors but is a complex result of the global economy, changes in consumer behavior, and intensified competition. In this situation, for luxury brands to regain growth, they need to actively reflect new values such as sustainability and ethical production, strengthen their digital strategies, and be cautious with their pricing policies.

The luxury market is always changing. It will be interesting to see how Gucci and Fendi overcome this crisis and what strategies they will adopt for the next phase.