Luxury brands are approaching 2023 with optimism as advertising spend in the sector rebounds. Despite challenges from China’s zero-COVID policy, brands are confident as headwinds ease.
In fiscal year 2022, the median advertising spend as a percentage of revenue rose to 8.0 pc, compared to 7.3 pc in 2021 and 6.2 pc in 2019. Overall, the luxury sector saw organic revenue growth of 13.7 pc (totaling more than $200 billion) in 2022, according to GroupM analysis of a composite of 13 public companies.
“For 2023, the first year since the start of the pandemic with no travel or quarantining restrictions in place for the largest global markets, luxury companies are opening their physical doors, showing off recent renovations and optimizing inventory levels in-store,” said, Kate Scott-Dawkins, GroupM’s Global President of Business Intelligence. “However, online channels remain critical in reaching younger customers and driving cross-sell and upsell opportunities,” she added.
Brands expect that investment in ad spend will continue to support growth and brand building, especially if the Chinese market rebound continues its current positive trajectory. Household savings among Chinese consumers increased by 10.8 pc at the end of 2022 compared to the year prior, and early spending trends in January and around the Lunar New Year support the optimism that many luxury executives are expressing.
Additionally, with inflation expected to see slow deceleration in 2023, therefore continuing to impact input costs, advertising is likely to be seen not just as a vehicle for consumer reach and engagement, but also as a means of justifying price increases in 2023.
Going forward, brands seem likely to prioritize building their presence with local luxury consumers in domestic markets in order to achieve sustainable growth, relying less on travel to European stores. Luxury brands have opened and renovated stores around the world, taking advantage of COVID-19 to focus on the in-store experience.
E-commerce will continue to be a growth area, but it also presents a challenge for luxury brands now facing a global medium for resellers and counterfeit products. Connected TV seems poised to gain share of ad spend for brands looking to experiment with more forms of digital media.