by Falling stock prices, excess inventory flooding outlets, a slowdown in once-reliable China: 2024 has been a tough year for luxury brands. Gucci has become a fixture on discount shelves, while Burberry shares are at multi-year lows.
But where there are losers, there are also winners. And if consumers don’t go high, they’ll go low – or at least lower.
“Overall, some customers, especially on the aspirational side, simply can’t afford to spend as much as they have in recent years due to inflationary pressures in housing and groceries,” Claire Tassin, retail and e-commerce analyst at Morning Consult, told Business Insider.
Aspiring consumers who used their extra pandemic cash to spend four-figures on handbags or branded jewelry are now being squeezed by rising prices. It’s middle-income shoppers whose consumer confidence has been hit the hardest, and who are turning to more practical, cost-effective options, Tassin said.
To avoid the high prices of luxury clothing, these consumers are turning to mid-range brands such as clothing store Zara and jewelry brand Pandora, which are doing well.
“Brands that offer accessible luxury or affordable fashion are succeeding because consumers are changing their spending patterns,” Federica Levato, senior partner at Bain & Company, told BI via email. “By offering attractive products at different price points, these brands can reach a wider audience, especially in economically uncertain times.”
Shares in Zara’s Spanish parent company, Inditex, and Denmark’s Pandora have both risen 26% this year, with quarterly revenues up 11% and 15% year-on-year respectively. Meanwhile, the Paris-listed shares of Gucci owner Kering and Louis Vuitton owner LVMH TK and TK have fallen respectively.
“For years, there’s been a trend of the low end growing, the very high end growing, and the middle end shrinking and hollowing out,” Jelena Sokolova, a senior equity analyst at Morningstar, told BI. “We’ve basically reached a tipping point where people need a brand that caters to people who aren’t exactly dumpster diving, but who also can’t afford luxury anymore.”
It’s not the first time that more mid-tier players have benefited from a luxury downturn. After the 2008 recession, brands like Michael Kors and Coach flourished.
Both Zara and Pandora have taken advantage of the broader luxury slowdown to steal market share from competitors, and both have room to continue growing. But it’s not just that the brands have lower price points — for years, they’ve strategically positioned themselves to grab market share and maximize profits.
Zara has established itself as a fashion-conscious, mid-market company. Its agile supply chain allows it to quickly produce stylish clothes based on runway looks. It manufactures its products—often versions of runway trends—in places like Morocco, Portugal, and Turkey, which are close to or in Europe, its largest market, and is the exclusive customer of most of its factories.
“Call it a value play, call it a dupe, but you can find a similar style that’s not as expensive,” Tassin said. “You can still scratch that consumerist itch and get a stylish piece that speaks to the same trend or expresses a similar aesthetic.”
The price points, which are below luxury but not so low as to alienate consumers and make them feel poorly made (think Shein and Primark), set the brand apart. A $349 leather jacket sits among the $70 blazers and a $229 pair of boots made from 100% cow fur.
“It’s become very crowded at this very, very low end. Zara is pivoting to the higher end, with more designed items, and playing into this fashion trend,” Sokolova said. “It’s acceptable for people to buy accessories from luxury brands and then buy clothes from Zara.”
Pandora, known for its strong and stable charm bracelet business, has expanded beyond that niche to target a broad range of consumers looking for a lower-cost option. It bills itself as the “only global brand in the accessible luxury jewelry market.”
The company has turned to lab-grown diamonds (recently seen on Pamela Anderson at the Met Gala) and pearls, as well as silver, potentially taking market share from the likes of Tiffany & Co., which have turned their backs on the highly profitable metal.
“They think that with these other product lines than charms they can benefit from consumer downtrading,” Sokolova said.
Sure, those who would normally buy a Cartier engagement ring probably wouldn’t do so at Pandora. But for smaller gifts, the brand has successfully expanded its customer base thanks to its size — it’s three times the size of its nearest competitor, Swarovski, Sokolova estimates.
Of course, what goes down is likely to come back up. The trick for both Zara and Pandora will be to maintain their appeal once aspirational consumers can splurge on luxury again. As it stands, U.S. inflation is slowing — but not anytime soon.
“The question is whether consumers will stay,” Sokolova said, “or whether their financial situation will improve and they will move on.”