Navigating Luxury During a Cost of Living Crisis

Last Updated on Tuesday 18th Oct 2022

The past few years have been turbulent for high street and luxury retailers alike. In the UK we have seen high-street retailers disappear and luxury retailers’ step into digital spaces to appeal to the forced shift in the market.

Both UK and US customers are seeing an increase in the cost of living and reduced disposable income. Previous recessions and Covid-19 have proven the resilience of luxury goods. The most affected during these difficult economic times are usually mid-level retailers.

The Lipstick Effect

Lower-mid-priced items that usually appeal to the middle class may see a dip in sales, although the lipstick effect is likely to kick in for luxury beauty. The lipstick effect is the purchase of smaller luxury items that provide an emotional boost.

In 2021 luxury lipstick sales rose by 48% in the first quarter of 2021 ahead of mass-market brands¹. The desire to maintain physical appearance during hard economic times remains, and luxury brands do a better job at marketing these beauty products as ‘appearance improving’. The experience of opening a new tube of luxury lipstick has an uplifting feeling on consumers when other experiences may feel dim.

Perceived Value Vs Price

Generally, those with a higher disposable income won’t kerb spending too much though they will consider the price. If businesses increase prices unfairly consumers feel they are being taken advantage thus reducing trust levels, on the flip side this can create a sense of exclusivity and increase perceived value.

Deloitte recently conducted a survey of executives at consumer-packaged goods companies, and roughly half felt they could continue to raise prices without materially affecting demand.²

A good example of this is Chanel. They increased their prices by 40% compared to pre-pandemic³, this accounts for an increase in material and labour costs, as well as inflation. The price increase has not been a deterrent for many consumers, Chanel has recovered to their pre-pandemic growth with record sales of $15.6bn 2021.⁴

The Power of Packaging

Consumers buy luxury items for a variety of reasons from prestige to self-expression and perceived value. This perceived value comes from trustworthy brands that offer high-quality products with a white glove service. The experience is part of a product purchase, that’s why brands need to place importance on both product and packaging. 

If you’re looking to revamp your packaging to reflect your brand values, get in touch now. 

¹ https://www.forbes.com/sites/pamdanziger/2022/06/01/with-inflation-rising-the-lipstick-effect-kicks-in-and-lipstick-sales-rise/?sh=8b31c1512761

² https://www2.deloitte.com/us/en/insights/industry/retail-distribution/consumer-behavior-trends-state-of-the-consumer-tracker/price-gouging-and-rising-us-inflation.html

³https://www.dazeddigital.com/fashion/article/54724/1/chanel-price-increase-handbags-pandemic-classic-flap-birkin-resell-market

⁴https://www.ft.com/content/7f47fdd9-5f5b-4970-a05c-975d4f3485ef.

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