The New World of Luxury

The luxury goods industry seems to have shrugged off the damage done by the Great Recession faster than many people expected. Companies remain cautious about the outlook for growth, but major brands recently reported strong gains in revenue and profit, defying all the signs of a difficult market, including weak consumer confidence, increased savings rates, and lingering doubts about the stamina of the recovery.

But these signs of a revival do not augur a return to business as usual. The Great Recession was more than a drag on demand. It was the tipping point for several trends—including profound changes in consumer behavior and the competitive landscape—that threaten to erode the mystique of luxury. In this new world of luxury, being iconic and exclusive is not enough to make a brand grow, and fewer consumers are willing to blithely accept high prices as the mark of luxury. They need better reasons to buy.

To respond to these changes, luxury goods companies will need to resolve conflicting priorities in every major aspect of their business: target markets, consumer segments, product portfolios, and distribution channels. Companies that skillfully manage these tensions will find opportunities for growth in both mature and rising markets.