Executive Summary
The Growing Divide and Market Opportunity
A major market opportunity is opening between high-end luxury and mass fashion, driven by fundamental structural shifts in the global economy. The gap between the global middle class and the very rich continues to expand dramatically. US real hourly wages for the top 10% have grown to 3.16X median wages, up from 1.94X in 1973, representing a 63% increase in wage inequality over five decades.
This widening gap creates a critical challenge for luxury brands pursuing aggressive pricing strategies. Middle-class consumer income has barely grown ahead of inflation, and far below the price inflation in high-end consumption over 2019-2024. While the Forbes 400 total net worth indexed and the Cost of Living Extremely Well Index (CLEWI) tracking ultraluxe items surged to nearly 200 by 2024, average weekly wages and the CPI remained relatively flat around 120.
Structural pressures on the global middle class combined with relentless price increases by high-end brands are creating an army of "luxury orphans" – people interested in better brands, quality and products, but with limited means to follow soft luxury brands in their price escalation. AI applications are expected to exacerbate this trend, potentially accelerating job displacement and income polarization.
This dynamic creates fertile ground for brands that can deliver genuine quality and design at accessible price points. The value for money problem in the luxury sector has become material, with traditional luxury brands increasingly out of reach for aspirational middle-class consumers who still desire quality and craftsmanship.
The Prosecco Analogy: Value Disrupts Premium
Prosecco provides a compelling comparable of how strong value for money can take a market by storm. While Prosecco brands have nowhere near the brand cachet of champagne champions, they sell a great product at a far more affordable price. This fundamental value proposition has driven transformative market dynamics over the past three decades.
The price differential remains substantial and has actually widened. In 2013, champagne sold for approximately 3.6X the price of Prosecco at USD 27 versus USD 7.70 per bottle. By 2024, this gap had expanded to 4.6X, with champagne reaching USD 37 per bottle while Prosecco remained at USD 8.10. Despite this growing price premium, champagne has failed to capture volume growth.
Prosecco volume growth has been remarkable. While champagne volumes remained essentially flat from 2013 to 2024 – partly constrained by having fully exploited its geographical area of denomination – Prosecco experienced explosive growth. By 2024, Prosecco volumes reached 2.6X champagne volumes, up from just 0.7X in 2013. This represents a near quadrupling of relative market share based purely on superior consumer value proposition.
This market dynamic is not unprecedented in the luxury sector. The ready-to-wear segment similarly overtook haute couture by delivering quality and design at more accessible price points. Market reinvention by lower-priced competitors represents a recurring pattern when incumbent premium players lose touch with value fundamentals.
"Prosecco brands have nowhere near the brand cachet of the champagne champions. But they sell a great product at a far more affordable price. This has brought Prosecco to experience massive volume growth in the past 30 years, while champagne volumes have been flat."
The Winning Formula: Quality at 3-5X COGS
Winning in this emerging space requires a precise combination of good quality and lower COGS multipliers. The formula is decidedly not to replicate mid-price fashion brands like SMCP, which achieve initial gross margins around 90% by approaching COGS multipliers of 10X or more – essentially matching luxury goods brands' economics while lacking their brand equity.
Remarkably, SMCP's gross margin has consistently exceeded that of Hermès despite its mid-price positioning. From 2012 to 2024, SMCP maintained gross margins of 72-76%, actually running 2-12 percentage points higher than Hermès' 64-74% range. This demonstrates how excessive COGS multipliers undermine value perception even when absolute prices remain below luxury thresholds.
The winning approach also avoids confining brands below EUR 100, where mass-premium players with scale advantages dominate. Instead, the sweet spot lies in maximizing the EUR 100-1000 range in both fashion and leather goods with industrial cost to retail price ratios of 3-5X. This brings compelling value to consumers – not just lower content for lower prices, but genuine quality at fair pricing.
Analysis of handbag pricing across 35+ brands reveals this EUR 100-1000 range as a significant opportunity gap. Ultra-luxury brands like Chanel, Bottega Veneta, and Dior cluster well above EUR 2000. Established luxury players including Prada, Celine, and Louis Vuitton occupy the EUR 1500-4000 range. Meanwhile, mass-premium brands like H&M, Zara, and Charles & Keith concentrate below EUR 100.
The EUR 100-1000 range remains relatively underserved, requiring time and investment to build brand equity to compete effectively. This creates both barrier and opportunity – established players are reluctant to descend from premium positioning, while mass brands struggle to ascend without appearing overpriced. New entrants with the right formula can capture this space by offering credible quality without legacy pricing structures.
Emerging Winners: Polène and Songmont Lead
Several brands are successfully penetrating this space with promising developments, demonstrating the viability of the value-quality proposition. Polène stands particularly tall, with handbags at less than EUR 500 taking Western markets by storm. Their first beachhead in Milan's prestigious Via Manzoni is drawing crowds, signaling strong consumer demand for accessible quality in a traditional luxury corridor.
Google search trend data reveals Polène's remarkable momentum. Over the 12 months ending February 2025, Polène's search interest frequently exceeded 150-200 on the index (with February 2, 2025 = 100), while established luxury giants like Gucci, Louis Vuitton, Dior, and Prada clustered in the 50-125 range. This search intensity suggests Polène is capturing mindshare far beyond what its current scale would suggest.
Chinese brands are leading the charge with particularly aggressive growth. Songmont has been growing like a weed, offering outstanding leather quality with handbags at less than USD 500. WeChat Index data tracking Chinese handbag brands shows Songmont's share growing from just 3% in January 2025 to 11% by January 2026, while Coach's share declined from 86% to 70% over the same period. Other emerging Chinese brands including Bampo, Qiuzhen, Dissona, and Grotto collectively captured 19% share by January 2026.
Product quality from these emerging brands is genuine, not merely price-driven positioning. Dragon Diffusion offers buffalo calf tapered leather bags at USD 689. Polène's certified textured Italian calf leather bags range from EUR 379 to EUR 560. Songmont and Bampo utilize full-grain nappa leather and suede with top-grain cowhide leather, delivering materials and construction quality comparable to much higher-priced luxury offerings.
These brands are bound to take over the pressured global middle classes. Before long, they will not just be a force to contend with in China – they will be competing vigorously in Europe and the USA as well, following the same internationalization path that Chinese technology and automotive brands have successfully pursued.
Distribution Challenges and Solutions
Distribution represents a significant challenge for European and American players pursuing this opportunity, particularly given the collapse of traditional go-to-market channels. Chinese brands benefit from structural advantages in their home market, making the most of low rent on third and fourth floors of the many shopping malls serving high-end and premium markets in China.
Shopping mall floor stratification in China creates natural distribution tiers. Analysis of Deji Plaza in Nanjing illustrates this dynamic clearly. The ground floor is dominated by Western luxury brands including Gucci, Prada, Burberry, Louis Vuitton, and others commanding prime visibility and foot traffic. Meanwhile, the third floor is predominantly occupied by Chinese brands, accessing the same mall ecosystem and customer base at substantially lower rent costs.
The collapse of multi-brand retail in the West removes a traditional avenue for up-and-coming brands. Department stores and specialty multi-brand boutiques that historically incubated emerging labels have largely disappeared or dramatically reduced floor space. This eliminates the curated discovery mechanism that helped brands build initial traction before graduating to standalone retail.
The solution lies in making the most of vacant stores in fringe locations, as Polène has successfully demonstrated in Milan. Many banks are closing branches in semi-central locations, creating availability of well-located retail space at below-premium rents. These former bank branches often feature quality architecture, good visibility, and proximity to luxury corridors without commanding luxury rental rates.
Polène's Via Manzoni location exemplifies this strategy. While positioned on the same street as Burberry and adjacent to Milan's luxury quadrilateral anchored by Via Montenapoleone, it occupies a location that traditional luxury brands would consider secondary. This provides brand association benefits and customer access while maintaining cost structures consistent with accessible pricing.
Rethinking "Made In" for Value Creation
"Made in Italy" should theoretically guarantee high quality. However, if that quality is sold at COGS to retail price ratios exceeding 10X, then its value for money proposition becomes less compelling. Besides, many high-end brands have focused on driving down COGS – both in terms of materials and assembly – which puts at risk the idea that "made in" automatically signifies quality.
The situation becomes particularly problematic when it is "made in Italy" by Chinese workers operating under challenging conditions, as documented in previous research on "responsible" Made in Italy opportunities. This undermines both the quality assurance and ethical dimensions that should theoretically justify premium pricing for Italian manufacturing.
A more compelling approach may be to design and engineer products in Italy with high-quality Italian fabric and leather, then have them assembled in lower labor cost locations. Moncler provides an excellent precedent, very decently producing approximately 30% of its outerwear in Romania while maintaining quality standards and brand perception.
Romania has emerged as a significant production hub for luxury brands seeking this balance. Moncler operates Industries Yield Srl in Bacău with 1,911 employees generating EUR 46 million in revenues growing 26% in 2024. LVMH's Somarest operates three factories with 707 employees generating EUR 79 million in revenues. Prada's Hipic Prod Impex runs two factories with 468 employees producing EUR 17 million in leather goods.
These Romanian operations achieve respectable profitability while scaling production capacity. Moncler's Romanian operation runs 5% net profit margins, LVMH's achieves 7%, and Prada's reaches 8%. This demonstrates that quality production in lower-cost locations can work economically while preserving design integrity and material quality from Italian sources.
The key is maintaining the value-creation activities in high-skill locations while right-sizing assembly costs. Italian design expertise, pattern-making, material selection, and quality control protocols can be preserved while labor-intensive assembly occurs where it makes economic sense. This approach serves both brand authenticity and consumer value.
Investment Conclusion
The luxury goods sector faces a fundamental disruption from below as the gap between high-end luxury pricing and middle-class purchasing power reaches unsustainable levels. The creation of an army of "luxury orphans" – consumers who desire quality and brand value but cannot follow traditional luxury brands in their price escalation – represents both a threat to established players and a transformative opportunity for new entrants.
The Prosecco analogy provides a powerful framework for understanding this dynamic. When a category offers compelling value for money at accessible price points, volume growth can be explosive even when competing against premium incumbents with superior brand equity. Prosecco's growth to 2.6X champagne volumes over three decades, despite a 4.6X price differential, demonstrates how value trumps cachet when the pricing gap becomes too wide.
The winning formula is clear: deliver genuine quality in the EUR 100-1000 sweet spot with COGS multipliers of 3-5X rather than the 10X+ ratios that luxury brands command. This approach provides authentic value to consumers rather than simply offering lower content at lower prices. Brands like Polène and Songmont are proving this model works, generating significant consumer enthusiasm and rapid growth.
For investors in established luxury brands, this trend presents material headwinds that may intensify. As middle-class purchasing power continues to lag luxury price inflation, volume growth becomes increasingly challenged. Traditional luxury players face a difficult choice: defend ultra-premium positioning and accept volume constraints, or move down-market and risk brand dilution. Neither path is straightforward.
Chinese brands appear particularly well-positioned to capture this opportunity. They benefit from low-cost distribution infrastructure through shopping mall upper floors, established manufacturing ecosystems, and increasingly sophisticated design capabilities. As these brands internationalize into Western markets, they will bring the same competitive intensity that Chinese automotive and technology companies have demonstrated in other categories. European and American luxury incumbents should prepare for intensified competition in the accessible luxury segment.
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