Luxury brands urged to protect margins as profits slide

"Profit margins at the world's largest luxury goods companies have almost halved in just three years, prompting calls for more disciplined cost management that preserves brand equity while restoring profitability. Research from supply chain consultancy Inverto, part of Boston Consulting Group, shows that the average operating margin across the 20 biggest luxury groups has fallen from 24 per cent in 2022 to 13 per cent today."

"Traditionally, luxury houses have adopted high-cost approaches across their entire business, including areas not directly tied to product craftsmanship or customer experience, such as IT, logistics and back-office functions. Daniela Klotz, managing director at Inverto, argues that meaningful savings can be achieved in these "indirect categories" without diluting brand identity. "In indirect spend areas, systematic management can unlock savings of 8 to 10 per cent, or more, within six to twelve months," she said."

Average operating margins across the 20 biggest luxury groups fell from 24 per cent in 2022 to 13 per cent today. Half of those companies have experienced margin declines and five are now operating at a loss. A slowdown in global demand, particularly in China and the US, combined with rising input and operational costs, has squeezed profitability. Luxury houses have traditionally maintained high-cost operations across IT, logistics and back-office functions. Systematic management of indirect spend can unlock savings of 8–10% within six to twelve months. Software licence optimisation can cut software spending by about 15%. Marketing and visual merchandising can reduce costs by up to 30% while preserving visual standards.

Read at Business Matters