The luxury industry is reportedly facing a slowdown as shoppers sober up after their pandemic spending spree.
This slowdown has left luxury brands with a growing pile of unsold stock, The Wall Street Journal (WSJ) reported Friday (Dec. 8).
Sales across the sector rose by 15% in 2022 at constant exchange rates, according to the report, which cited Bain & Company estimates. However, the growth rate this year is expected to be around half of what the industry achieved in 2022.
Other analysts, too, have said the luxury retail sector is returning to its baseline after seeing a boom during the pandemic.
Luxury brands have traditionally been protective of their reputations for exclusivity and have avoided deep discounts, the WSJ report said. This poses a challenge for luxury brands as they need discreet ways to unload their unsold inventory without appearing desperate.
One of the old tricks luxury brands used to make leftover inventory vanish was burning it, per the report. However, this practice has become taboo, as European Union (EU) countries voted earlier this year to outlaw the incineration of fashion waste.
Luxury brands have been diligently weeding out discounts in recent years, according to the report. They have reduced their reliance on wholesale accounts and increasingly sell through their own stores, where they have full control over prices.
The brands have also cracked down on department store discounts, the report said. They have been opening concessions in department stores, allowing them to control inventory and pricing.
However, with the current excess stock, luxury brands are exploring other options, per the report. Off-price outlets have become increasingly popular. These outlets can shift meaningful amounts of stock while offering brands the discretion of offline prices.
Luxury brands also have the option to use other backchannels to clear stock, according to the report. A network of unofficial resellers buys leftover goods and makes a profit by exploiting regional price gaps. While luxury brands have tried to stamp out this practice, there have been recent reports of brands offering inventory directly to resellers.
Luxury brands rely heavily rely on their image of exclusivity and rarity, so adopting a markdown strategy similar to big-box stores would risk diluting their brand identity, PYMNTS reported in August.
