Luxury brands bet on $160 lipsticks and $1,400 accessories to combat industry slump

With astir each shoppers facing a consciousness of sticker terms shock, immoderate luxury manner lines are experimenting with new, little pricey products successful a bid to stay applicable and pull caller consumers.

Louis Vuitton's long-awaited quality postulation deed branded stores and concessions past month, marking the latest iteration for the 171-year-old LVMH-owned luxury titan.

And portion the signature scented lipsticks don't travel inexpensive astatine $160 a pop, it indicates a wider displacement among luxury players trying to get much shoppers done the doorway without diluting their flagship offerings.

"I deliberation this is simply a precise due move," Luca Solca, assemblage caput for planetary luxury goods at Bernstein, who has extensively studied diversification of luxury brands, told CNBC via email.

"Mega-brands would beryllium omniscient not to merchantability excessively galore of their halfway products and usage little implicit terms categories to prosecute with a broader [range of] aspirational consumers," helium noted.

With esteemed constitution creator Pat McGrath arsenic originative director, Louis Vuitton whitethorn beryllium hoping that the scope of 55 lipsticks, 10 articulator balms and 8 eyeshadow palettes — and an accompanying $2,890 mini trunk transportation lawsuit — volition entreaty to her cult pursuing of young, U.S. consumers.

It follows akin expansions into cosmetics by brands specified arsenic Prada, LVMH's Celine, Dries Van Noten and, soon, Miu Miu. "Beauty is an charismatic class from a fiscal viewpoint, arsenic it offers precocious GM% [gross margins]," Bernstein said successful a enactment successful March.

Meanwhile, the explosive popularity of Labubu keychains has birthed a caller question of extravagant container charms, including from Coach, Longchamp and a $1,420 enactment from Louis Vuitton, arsenic brands stake that the "treatonomics" trend volition tempt shoppers to splurge connected small luxuries adjacent arsenic they chopped backmost connected bigger summons items.

The luxury diversification comes arsenic the assemblage grapples with an industry-wide slowdown, U.S. tariffs, and wider outgo pressures.

"Brands are utilizing the playbook from 2015, 2016," Jelena Sokolova, elder equity expert astatine Morningstar, said via email, referring to different play of softness successful the industry, amid a dip successful Chinese demand.

"Back then, brands turned to streetwear, e.g. sneakers, smaller handbags and container charms," she said. "Those efforts person proved rather palmy successful the past with increasing stock of millennial user buying, supported by a wide pick-up successful sentiment."

This clip around, the luxury manufacture has been nether unit since 2022, erstwhile a Covid-era roar gave mode to malaise arsenic consumers grew weary of steep — and often what they deemed unmerited — terms increases.

Bank of America Securities said successful a 2022 study that the sector's gross and maturation going guardant would beryllium determined by 3 factors: doubling the full addressable marketplace (TAM) including with caller products; expanding taste relevance; and ongoing marque reinvestment to summation desirability.

"New categories turn the TAM and summation taste relevance," Ashley Wallace, managing director, European user discretionary astatine Bank of America Securities, and 1 of the report's authors, told CNBC via email.

Other examples of caller luxury categories see footwear, eyewear, perfume and tiny leather goods.

Lower terms introduction points can, successful turn, bring a younger and broader user basal into a brand's ecosystem, with the anticipation that shoppers volition past make a consciousness of marque loyalty implicit time.

"Younger customers person go progressively engaged with luxury supported by taste relevance, online engagement and advertising. As these customers determination up the income ladder, accumulate much assets and intergenerational transportation of wealthiness continues, this younger procreation volition power a greater stock of planetary wealthiness and depletion powerfulness truthful underpinning the structural tailwind of luxury demand," BofA Securities said successful the report.

LVMH's Chief Financial Officer Cecile Cabanis acknowledged that strategy during the French luxury conglomerate's 2nd 4th net telephone successful July.

"You besides request to link with the younger generation," she told investors. "You besides request to person immoderate connection wherever you tin conscionable them, onboard them and past they tin spell done your worth ladder."

"We garbage to bash that with inexpensive bags. The mode we bash it is Vuitton. Vuitton is ever the champion desirability, ever the champion quality. So you usage accessible merchandise categories successful bid to bash it: perfume, tiny leather goods, and determination are a fewer others. That's truly however we enactment connected [the] portfolio," she said.

But brands person a good equilibrium to onslaught successful broadening their entreaty without diluting the exclusivity of their labels.

Sokolova said that the propulsion into new, little terms categories ought to beryllium done alongside the enlargement of a brand's much costly merchandise offerings, to guarantee it continues to cater to much affluent consumers.

Some brands person learnt that acquisition the hard way. Heavy discounting from the likes of Burberry and Gucci successful the past has near them struggling to regain their presumption among precocious spenders.

Whether brands' latest signifier of class diversification volition beryllium palmy successful the existent epoch of economical pressures and compressed user spending inactive remains to beryllium seen, however.

"It was palmy 10 years ago. So far, it's [too] aboriginal to say," Sokolova said.

"Any marque has to found itself with the caller procreation of consumers, different its entreaty volition property unneurotic with the existent buyers. [But] ultimately, aspirational consumers are much economically delicate truthful stronger system is needed for them to sustainably turn purchases."