Luxury Brands Turn to Affordable Lines Amid Economic Downturn

Luxury brands are increasingly turning to more affordable product lines to maintain their appeal and attract new consumers, as the broader market faces challenges such as economic downturns and rising costs. This strategy, known as "treatonomics," involves offering smaller, more accessible luxury items that consumers are willing to purchase even when they are cutting back on larger, more expensive items.

Louis Vuitton, a 171-year-old luxury giant under the LVMH group, recently launched a highly anticipated beauty series in its stores and counters. While the signature scented lipstick retails at 160 dollars, the move reflects a broader shift in the luxury industry. Brands are seeking to attract more consumers to their stores without diluting the appeal of their core high-end product lines.

Luca Solca, the global head of luxury goods at Bernstein, who has long studied the diversification strategies of luxury brands, believes this is a sound approach. He notes that top luxury brands should avoid over-saturating their core product lines and instead use lower-priced categories to attract "aspirational consumers"—those who desire luxury goods but may not yet have the purchasing power.

Louis Vuitton's beauty series, created in collaboration with renowned makeup artist Pat McGrath, includes 55 lipsticks, 10 lip balms, and 8 eyeshadow palettes, along with a 2,890-dollar mini storage box. The brand aims to attract McGrath's large and loyal young fan base in the United States.

Other brands, such as Prada, Celine, and Dries Van Noten, have also ventured into the beauty sector, with Miu Miu set to follow. Bernstein's March report highlighted the financial attractiveness of the beauty category due to its high gross margins.

Meanwhile, the popularity of BUBU keychains from the Chinese company Pop Mart has sparked a new trend in high-end bag charms. Brands like Coach and Longchamp have introduced similar products, while Louis Vuitton has launched a 1,420-dollar bag charm. This trend underscores the industry's focus on "treatonomics," where consumers are willing to spend on smaller luxury items even if they reduce spending on larger, more expensive products.

This diversification comes at a time when the luxury industry faces multiple challenges, including overall market stagnation, U.S. tariff pressures, and rising costs. The industry is drawing on strategies from the 2015-2016 period when Chinese market demand declined, leading to a downturn in the luxury sector. Brands then turned to streetwear, such as sneakers, small handbags, and bag charms, which successfully attracted millennial consumers and benefited from an improving market sentiment.

Since 2022, the luxury market has been under pressure as the post-pandemic boom fades and consumers grow dissatisfied with rising prices that they perceive as unjustified. A report from 2022 highlighted that future growth in the luxury sector will depend on expanding the total potential market size through new products, enhancing cultural influence, and continuously investing in brands to maintain their appeal.

New product categories, such as footwear, eyewear, fragrances, and small leather goods, can expand the total market size and enhance a brand's cultural relevance. Lower-priced entry-level products can attract a younger and broader consumer base, fostering long-term brand loyalty as these consumers' incomes and assets grow.

LVMH's Chief Financial Officer acknowledged this strategy, emphasizing the need for brands to connect with younger generations by offering products that resonate with them. This approach aims to gradually introduce these consumers to higher-end products within the brand's ecosystem.

However, brands must carefully balance their efforts to expand their appeal without compromising their high-end, exclusive positioning. Some brands have learned this lesson the hard way, such as Burberry and Gucci, which over-relied on discount promotions and struggled to regain their status among high-end consumers.

Given the current economic pressures and tightening consumer spending, it remains to be seen whether this diversification strategy will succeed. While similar approaches were effective a decade ago, the current economic climate and consumer behavior may require a different approach. Brands must win over the next generation of consumers to maintain their relevance, but "aspirational consumers" are more sensitive to economic conditions, and their spending will only grow sustainably if the economy improves.