As nearly all consumers shy away from high-priced goods, some luxury brands are experimenting with more accessible new products to maintain brand relevance and attract new consumer demographics. Last month, Louis Vuitton's highly anticipated beauty collection launched in brand stores and counters, marking a new chapter for the 171-year-old luxury giant under LVMH Group (LVMUY.US). While the collection's signature fragrance lipsticks retail for $160 each (hardly affordable), this move reflects a broader industry shift: major brands are attempting to draw more consumers to stores without compromising their core high-end product lines.
"I think this is a very appropriate strategy," said Luca Solca, Bernstein's global luxury goods analyst who has long studied luxury brand diversification strategies. He noted: "Top luxury brands shouldn't sell too many core products, but rather use lower-priced categories to attract more 'aspirational consumers' (those who desire luxury goods but don't yet have the purchasing power)."
Louis Vuitton enlisted renowned makeup artist Pat McGrath as creative director for the beauty line, which includes 55 lipsticks, 10 lip balms, and 8 eyeshadow palettes, complemented by a $2,890 mini vanity case. The brand hopes to attract Pat McGrath's large young fanbase in the United States through this collection.
Several brands have previously entered the beauty space, including PRADA (01913), LVMH's Celine, and Dries Van Noten, with Miu Miu set to follow. Bernstein stated in a March report: "From a financial perspective, beauty is an extremely attractive category due to its high profit margins."
Meanwhile, the viral success of POP MART's (09992) Labubu keychains has sparked a new trend in high-end bag charms. Brands like Coach and Longchamp have launched related products, while Louis Vuitton introduced bag charms priced up to $1,420. These brands are betting on "treatonomics" - the trend where consumers, even while reducing spending on expensive big-ticket items, remain willing to purchase small luxuries.
This luxury brand diversification comes as the industry faces overall sluggishness, U.S. tariff pressures, and widespread cost increases. "Brands are borrowing from 2015-2016 strategies," said Jelena Sokolova, senior equity analyst at Morningstar, referring to the downturn when Chinese market demand declined. "Back then, brands turned to streetwear, launching sneakers, small handbags, and bag charms," she added. "These moves were quite successful, not only attracting more millennial consumers but also benefiting from overall market sentiment recovery."
**Driving Luxury Market Expansion**
This time, the luxury industry has been under pressure since 2022. The pandemic-era boom has gradually faded, with consumers increasingly dissatisfied with continuously rising prices often deemed "overpriced," leading to industry malaise.
A 2022 Bank of America Securities report identified three factors determining future luxury industry revenue and growth: first, doubling the total addressable market through new product launches; second, enhancing brands' cultural influence; and third, continuous brand reinvestment to boost appeal.
"New categories not only expand the total addressable market but also enhance brand cultural relevance," said Ashley Wallace, Managing Director of European Consumer Discretionary at Bank of America Securities and co-author of the report.
Other emerging luxury categories include footwear, eyewear, fragrances, and small leather goods. Lower-priced entry products help bring younger, broader consumer groups into brand ecosystems, with brands hoping these consumers will gradually build brand loyalty over time.
Bank of America Securities noted in its report: "Driven by cultural influence, online engagement, and advertising, young consumers are showing increasing interest in luxury goods. As this group's income rises and assets accumulate, combined with ongoing intergenerational wealth transfer, they will control a larger share of global wealth and purchasing power, providing long-term structural support for luxury demand."
LVMH CFO Cecile Cabanis endorsed this strategy during the group's second-quarter earnings call in July, telling investors: "Brands must connect with younger generations, launching products that reach them, attracting them into the brand ecosystem, and gradually leading them to consume higher-end products."
"We refuse to achieve this through cheap handbags. Louis Vuitton's strategy has always been maintaining optimal appeal and quality. Therefore, we use more accessible product categories - such as fragrances, small leather goods, and a few other categories - to attract young consumers. This is the core philosophy behind our product portfolio construction."
**The Art of Balance**
However, brands must carefully balance expanding appeal while avoiding weakening their high-end exclusive positioning. Sokolova believes that while introducing lower-priced categories, brands should simultaneously expand high-end product lines to ensure continued satisfaction of high-net-worth consumer demands.
Some brands have learned this lesson from painful experiences. Previously, Burberry (BURBY.US), Gucci, and other brands over-relied on discount promotions, making it difficult to regain their former status among high-end consumer groups.
However, amid current economic pressures and tightening consumer spending, whether this category diversification strategy will succeed remains to be seen.
"This strategy worked ten years ago, but it's too early to draw conclusions now," Sokolova said. "Any brand must win over new generations of consumers, or their appeal will decline as existing customers age. But ultimately, 'aspirational consumers' are more sensitive to economic conditions - only when the economic environment improves can their consumption achieve sustainable growth."