Are the middle classes killing off luxury fashion? Stella McCartney would really like to know

Luxury fashion sales enjoyed a boom during Covid as lockdown pushed people to seek solace in retail therapy. But the subsequent cost of living crisis has seen shoppers turn their backs on such extravagance. Adam Luck looks at an industry being forced to cut its cloth accordingly

Not so stellar: the fashion designer’s label is among those suffering (Getty/Shutterstock)

From Paris’s chic Marché Saxe-Breteuil, the likes of Robert Downey Jr, Cate Blanchett and Chris Rock could glimpse the Eiffel Tower while taking in Stella McCartney’s fashion show.

As ever with the legendary Beatle’s daughter, no expense was spared for her spring-summer 2024 show, but it was not just the Paris landmark that cast its shadow over the extravaganza.

Behind the bonhomie, new figures uncovered by The Independent show that Anin Star Holding, the company behind Stella McCartney Ltd (SML), has just registered a £185m loss for 2022. This is because McCartney and fellow shareholder – fashion giant Moët Hennessy Louis Vuitton (LVMH) – have recognised that projected profits are not going to be at the level they had envisaged. And they are not alone.

The high-end fashion market is under considerable strain with a slew of iconic fashion brands and retail platforms losing money and lustre.

Luxury platform MatchesFashion, which sells Givenchy, Alexander McQueen and Dolce & Gabbana, has been offering 70 per cent off – should you feel in need of some retail therapy. It is only a month since Matches was flogged off to Mike Ashley’s Fraser Group for £50m after once being valued at an incredible £790m.

The same month its rival fashion platform Farfetch, which is based in London, was the subject of a fire sale to South Korean giant Coupang, which promised a £390m cash injection in return. Ironically this Korean takeover scuppered the proposed sale of a sizeable chunk of the iconic-if-ailing retailer Net-a-Porter to Farfetch by its owner Richemont, which also owns Cartier.

No wonder Richemont boss Johann Rupert has said that the luxury industry is feeling “the squeeze”.

Even LVMH, which dominates global fashion, is not immune to the slump with its market value falling from a high of £392bn in April last year to a current market capitalisation of just under £300bn. Perhaps its greatest rival, Kering, which owns Alexander McQueen, Saint Laurent, and Gucci, has also been hit where it hurts with its share price going from £495 in March last year to just £330 this week. Burberry’s share price has dropped by 35 per cent in the last six months and Italian luxury brand Ferragamo by 22 per cent over the same period.

Luxury market expert Till Dudler, managing director at consultancy giant Accenture, said: “This is not an easy time, and the next year is going to be tough… it will be survival of the fittest.” He draws a distinction between the “true luxury” market, which remains buoyant, and “aspirational luxury”, which caters to the middle classes and has been hard hit by the spiralling cost of living crisis.

Both ends of the luxury market exploded during the pandemic when people were trapped at home and, ironically, realised that they had money to spend. Retail therapy became de rigueur whether you were in Houston, Hong Kong, or Hampstead. Inevitably the online platforms exploded in popularity with people denied the chance to roam luxury showrooms.

Jonathan Siboni, the chief executive at Paris-based luxury data analyst Luxurynsight, said: “When you’re locked up at home there’s a lot of money that you save. People would indulge themselves buying luxury products.

“Because they have access to online shopping, they can compare the prices and that is why the brands took the upper hand to increase the prices. The prices increased tremendously during Covid.”

Since 2019, according to Luxurynsight analysis, prices in the luxury market have increased on average by 32 per cent. This rampant inflation is perhaps best illustrated by the handbag market, according to industry analysts Bernstein. The Chanel 2.55, favoured by Sarah Jessica Parker among others, has gone from $5,800 in 2020 to $10,200 now. The Prada Galleria has gone from $2,750 in 2021 to $4,300 today.

Siboni believes that the current “reorganisation of the market” means that brands will no longer be able to drive growth by simply upping the prices.

He said: “Because when you increase the price too much it gets to the point where you cannot increase anymore, and you may even lose customers because now you have become too expensive.

“I believe that we are getting to this point now. If you double the price during Covid, people don’t make twice the money now, so you have lost a lot of potential customers.”

With the pandemic receding in the rear-view mirror, luxury brands have reacted by trying to sell to customers directly and this has meant the online retail platforms have suffered. Siboni points to the harsh reality of the luxury business, that unfortunately, brands come and go. He added: “So, 26 years ago a lot of brands went out of business and today, yes, it will be the same.” Both Siboni and Dudler are bullish about the long-term prospects of the luxury fashion industry but believe that, with few exceptions, the smaller luxury brands will be particularly hard hit.

With the price of debt and inflation still high, many brands are unlikely to be indulged by banks, and venture capital firms are also increasingly reluctant to buy luxury brands.

Despite her brand’s financial difficulties, Stella McCartney paid herself £2.1m last year. Losses at SML fell to £10m, down from £32m the previous year, and revenues were up by 23 per cent to £40m. But accumulated losses for SML are now touching nearly £100m. Anin Star is the parent company of Stella McCartney Ltd. McCartney holds 51 per cent of the shares and LVMH holds 49 per cent.

Accountancy expert Professor Richard Murphy, of Sheffield University, said that the £185m loss in the parent company largely reflects share value being written off: “This write-off must reflect a reduced expectation of future profits in Stella McCartney,” he said.

Dudler is not alone in believing that the byword will be “consolidation” with smaller brands seeking to shelter from the storm by joining forces with the luxury empires. He said luxury brands will “need to drive volume growth, which is very hard when consumers are pressed for money in their pocket and the market is not going to grow as much.

“So, that means you have to really beat the competition, instead of just increasing the price.”

Siboni believes that the key will be domination of the burgeoning “digital” market – or online to you and me. He draws a chilly analogy: “In digital, the winner takes all. There is no Amazon Number Two.”

Both LVMH and Stella McCartney did not respond when approached for comment.