Luxury brands’ big challenge: figuring out Gen Z ​

The luxury sector is undergoing a significant transformation as Gen Z, projected to account for 25% of global luxury spending by 2030, necessitates adapted strategies from brands. Companies like Tapestry (Coach) and Prada Group (Miu Miu) are successfully engaging this demographic through increased marketing spend, accessible entry-level products, and social media, exemplified by Miu Miu's 49% sales growth in H1 2025. In contrast, legacy brands like Kering's Gucci are struggling, reporting a 25% sales decline in Q2 and a 43% share value drop over two years, indicating a clear divergence between adaptive and traditional players in the competitive luxury market.

Analysis

The luxury goods sector is experiencing a significant bifurcation driven by the rising influence of the Gen Z consumer, who are projected to represent 25% of the market by 2030. A clear divergence is emerging between winners and losers based on their ability to adapt. Companies in the 'affordable luxury' segment are outperforming, with Tapestry (parent of Coach) reporting a 9.9% revenue increase and a tripling of its share value over two years by increasing marketing spend to 10% of sales and focusing on social media engagement. Similarly, Prada's Miu Miu leveraged accessible entry-point products to achieve a 49% sales surge in the first half of 2025. In stark contrast, legacy brands that are slow to pivot are faltering. Kering's Gucci is the primary example, suffering a 25% sales decline in Q2, a management shake-up, and the sharpest drop in social media engagement, contributing to a 43% erosion in Kering's stock value over two years. Even LVMH, while seeing success with its Loewe brand, faces anecdotal evidence of its flagship Louis Vuitton brand being perceived as 'passé' by younger consumers, highlighting that brand legacy alone is no longer a guarantee of market leadership.

Key Decisions for Investors

• Consider overweighting exposure to affordable luxury players like Tapestry (TPR), which has demonstrated a successful Gen Z engagement strategy evidenced by a 9.9% revenue increase and significant stock outperformance.
• Exercise caution with Kering, as its flagship Gucci brand's 25% sales decline and sharp drop in social media relevance signal fundamental challenges in adapting to new consumer tastes, which have already erased 43% of the stock's value over two years.
• For diversified conglomerates such as LVMH, a deeper portfolio analysis is required, as the success of trend-aware brands like Loewe may be partially offsetting signs of fatigue in core brands like Louis Vuitton, creating a mixed performance outlook.
• Monitor key leading indicators of brand health such as social media engagement rankings, the performance of entry-level product lines, and marketing-to-sales ratios, as these are proving to be critical drivers of divergence in the sector.