(Yicai) Aug. 12 -- With the global luxury goods market in a slump, highlighted by LVMH’s dip in first-half revenue, industry experts expect most brands in the sector to either cut prices further or introduce more affordable smaller items.

Amid worldwide economic uncertainty, the downturn in the luxury market is driven by a falloff in entry-level consumers and a shift by the affluent toward spending on services and experiences rather than things. Revenue at LVMH, the world's largest luxury goods group, rose 13 percent last year, but fell 1 percent to EUR41.7 billion (USD45.5 billion) in the six months ended June 30.

Luxury brands typically divide their clientele into two segments, said Jonathan Yan, a Shanghai-based partner at German consultancy giant Roland Berger. First, top-tier clients who represent about 3 percent of the population and contribute as much as 30 percent of revenue; and second, aspirational shoppers who often need to economize or save up to afford premium goods.

Aspirational shoppers are tightening their belts in the current economic climate, according to Barsali Bhattacharyya, deputy director for industry research at Economist Intelligence Unit. High inflation, high interest rates, and rising youth unemployment in many countries and regions have adversely affected this key luxury consumer segment, she added.

After years of growing spending on consumer goods, there is now a clear trend of consumers shifting their expenditure to services and experiences, Bhattacharyya said. More are spending on travel and leisure activities, such as international trips for music or sports events, rather than on goods, she told Yicai.

High-net-worth individuals, 70 percent of whom saw their asset value rise over the past 12 months, are also spending mainly on experiences and services, especially travel, dining, and high-end hotels, according to a report by private Swiss banking group Julius Baer.

Brands such as Chanel and Hermès appear to be increasingly focusing on their affluent clientele, particularly VIPs. One manifestation of this strategy is their continued price rises, with Prada, Dior, and Louis Vuitton all increasing the cost of their handbags in recent years.

Still, most luxury brands will not follow this path and abandon the aspirational shopper, according to Yan. “Only a small number of luxury brands [such as Chanel] have succeeded with this strategy,” he said, “while others, including Gucci and Burberry, have not achieved satisfactory price increases and have even begun to reduce them.”

Yan pointed out that that two trends will become more pronounced: first, luxury brands that once relied on a large base of entry-level consumers will launch price cuts; and second, the definition of luxury will expand further, with some “little luxuries” coming into view. 

“Many luxury companies are now entering the beauty and fragrance categories,” he said. “Although these products do not represent a large share of business, they represent a new direction that most consumers can afford.”

Editors: Liao Shumin, Futura Costaglione