Luxury industry players have leveraged their exceptional financial resources to initiate profound changes for several years.
Feeding on the great trends of our time without distorting the uniqueness of its high-end positioning… To succeed in this balancing act, players in the luxury industry are mobilizing. Trends, strategic orientations, new perspectives… The point about a fundamental movement.
A beautiful example of a V-curve. After a historic drop of 23% in 2020, the global luxury market grew by almost 15% in 2021, for an estimated total revenue of 1,400 billion dollars. In addition, the sale of luxury personal goods (including ready-to-wear, leather goods, shoes, watches, jewelry, cosmetics and perfumes) – the heart of the sector – increased last year by nearly 30%, a record. LVMH, the French luxury giant, saw its sales jump 44% from 2020 and up to 20% from 20191. Bain & Company expects the sector to grow between 6 and 8% per year through 2025.
UNDERSTANDING THE TRENDS LEADING TO CUSTOMER EXPANSION
“The luxury industry is growing historically,” says Claudia D’Arpizio, global head of fashion and luxury at Bain & Company, lead author of the annual Bain/Altagamma “Monitor the world market for luxury goods” study. But the first factor that explains this strong recovery is the emergence of a new clientele. As in many areas, the pandemic has accelerated a series of upheavals already underway.
One of the main engines of growth is China, whose weight has doubled in just two years to reach 60 billion euros, or more than 20% of the world market. Although the American continent continues to be the source of 31% of consumption, everything indicates that the Asian giant will become the epicenter of luxury consumption in the coming years. But the expansion of the luxury clientele is not limited to Asia. “Another significant change concerns the local geography, specifies Claudia D’Arpizio. Until now, customers of luxury brands have been concentrated in large cities, which tends to be less and less true, namely due to travel to smaller cities. Brands are adapting accordingly, opening pop-up stores there, but also developing remote shopping.” Much of the dynamics observed in the United States therefore derives from secondary cities and suburban areas.
Customer expansion is also linked to the evolution of the luxury consumer era. The new generations, in particular, have a differentiated relationship with the sector. Claudia D’Arpizio perceives a fundamental change that took place in the 1990s and that continues to increase: “previously, the Luxury clientele was almost exclusively composed of adults who carried out a professional activity. Now four generations of consumers are active, with young people (millennials and Gen Z) but also grandparents.
MORE RESPONSIBLE, DIGITAL LUXURY FOR A RENEWED CUSTOMER EXPERIENCE
This broadening of the consumer base, and particularly its rejuvenation, is obviously not without consequences for brands. The offer must therefore evolve, with the marketing of products that can be used for more occasions: casual shoes, sportswear, travel items, etc. With age, it is also the very meaning given to the purchase of luxury goods that evolves. “It’s less about showing off your wealth than about your personality and benefiting from the brand image”, says Claudia D’Arpizio. Consumers are thus much more demanding about the brands they choose and the values they convey. They understand that they need to increase their transparency. Even if they are not always mature, so they communicate their will, show their strategies in terms of sustainability (materials, CO2 reduction, etc.)”.
Thus, we are witnessing the emergence of the “sustainability” aspect, particularly in the United States and Europe, with the consideration of various causes, first of all animal welfare and respect for the environment. A step taken successfully by several brands. A pioneer, Stella McCartney has, since the 2010s, positioned itself as an ethical and responsible House, with emphasis on the vegetable skin bags made from mushroom roots, an asset.
In the same way, luxury players no longer hesitate to invest in another field long considered contrary to the values attached to the top of the range: the second leg. Following Stella McCartney (again), Gucci and Burberry, for example, joined forces in 2020 with TheRealReal, the consignment store that has democratized second-hand luxury for ten years. In September 2021, Gucci launched GucciVault, an online concept store offering second-hand, refurbished and refurbished pieces. Another symptomatic example: the recent choice of the Parisian department stores, Printemps and Galeries Lafayette, to inaugurate spaces of several hundred square meters entirely dedicated to circular fashion. The second-hand luxury market thus reached €33 billion in 2021, an increase of 65% between 2017 and 2021 – compared to 12% for first-hand luxury in the same period.
Another new luxury growth lever: online sales. After a 50% jump between 2019 and 2020, they increased by 27% between 2020 and 2021, totaling €62 billion. Here again, the subject has long been a target of suspicion on the part of actors. But the health crisis and the rejuvenation of the clientele have clearly changed the perception. In a period of social distancing, brands have notably measured the extent to which digital can constitute a prime channel for nurturing their relationships with their customers – even though more than 85% of luxury purchases in 2021 are influenced by the web and more than 50 % occur thanks to digitaltwo. And the growth of digital should not stop there. By 2025, e-commerce is expected to represent up to 30% of total luxury goods purchases thanks to the creation of an omnichannel virtuous circle (direct e-commerce, indirect online distribution and physical stores)3.
Eager to offer new experiences to their customers, luxury players are positioning themselves in parallel in new virtual horizons. Virtual Gucci bags available on Roblox, Balenciaga on Fortnite, video games integrating NFTs from Louis Vuitton… the big houses are even pioneers in the two tech trends of the moment: metaverses and NFTs. Morgan Stanley estimates additional revenue linked to NFTs and fashion and luxury games by 2030 at $50 billion3.
At the crossroads of issues related to accountability and technological innovation, the potential of blockchain technologies is also taken very seriously. Unique in the luxury industry, giants LVMH, Prada and Cartier joined forces in 2021 to give birth to the Aura Blockchain project. Purpose of the platform: to guarantee the authenticity and traceability of products – very real – throughout their life cycle. And technology is thus proving to be the means to respond to what could become one of the top expectations of tomorrow’s luxury consumers: ensuring a top-notch responsible experience.
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