The popularization of luxury goods has dramatically raised the bar for what is considered exclusive, and ultra-premium brands that don’t offer a unique experience won’t remain upscale for long.
The number of known millionaires has jumped globally by 170% since 2000, with 24 million new millionaires joining the list, while the number of people with a fortune of more than US$ 50 million rose fivefold, according to a report by Credit Suisse. The rise of the wealthy in emerging markets – especially in China – has led to a frenzy in luxury consumption. Among the most visible consequences are high-end shopping meccas such as the jaw-dropping Landmark shopping center in Hong Kong and Orchard Road in Singapore, which are on par with the top luxury destinations in New York, London or Paris. Consulting firms Frank Knight and Capgemini estimate that millionaires in China jumped to 720,000 from 190,000 over the past 10 years.
These numbers only partially explain the voracious appetite for fashion and exclusive brands. The rising upper-middle class in emerging markets have also enthusiastically embraced the world of luxury. Even though they don’t have the same buying power as millionaires, their numbers are much higher and their impact on sales is significant. Consulting firm Bain estimates that the Chinese made up 24% of the global luxury market in 2017, and will be responsible for a whopping 46% of sales in 2025.
The volume of luxury buyers is so massive that luxury logos no longer define exclusivity for a select group of very wealthy individuals: an increasingly large number of people can afford to buy luxury goods. However, one of the pillars of the luxury industry is precisely the distinction it affords its buyers.
Millennials and Generation Z are emerging as the main consumers of high-end brands. According to Bain, they will be the main growth engine in luxury going forward, making up more than 50% of consumers worldwide. But what are their tastes and preferences?
Personalization, flexibility and high expectations
Personalization is key, and here we can include everything from fashion that’s aligned with religious habits such as hijabs to design that clearly reflects a set of values. LVMH lured U.S. designer Virgil Abloh, the founder of the revolutionary urban fashion label Off-White, to be its men’s artistic director. These new consumers also bet on a more flexible and creative idea of luxury ownership, which includes renting pieces or buying second hand, and they demand a flawless connection between online and physical shopping experiences.
High-end stores won’t get away with not having the personalized products these young shoppers want, at a physical store or online, with very fast store pickup options. They also expect to easily pay for luxury with their smartphones – about 65% of Chinese tourists use their mobile phones to pay for purchases when given a chance. These new luxury consumers also want the brands’ apps to be totally integrated with the physical store, and they want to be recognized by the technology as frequent clients, be it in their home town of Shanghai or when they are vacationing in Barcelona.
These three transformative forces – the tsunami of new consumers, the generational impulse and the technological revolution – are the foreshocks that precede a real earthquake in the luxury industry. First, the narrative of exclusivity becomes less relevant as more and more people around the world join the millions who can afford designer items. Parallel to this, luxury giants can’t go on ignoring the growing trend of rentals and pre-owned luxury buying championed by the new generation of consumers. Bain estimates that the secondhand market rose to EUR$22 billion in 2018, propelled by specialized online retailers. And high-end brands are increasingly betting on online sales as a key driver of growth, even if e-commerce puts them on a dangerously similar position as mass-market labels. With the same act of a click, it’s possible to buy a fast-fashion T-shirt and or an Armani suit.
But designer brands must go where their clients are. The e-commerce revolution has led to strategic shifts that would have been unthinkable just a few years ago. Today it’s possible to buy a US$3,300 Prada coat on Amazon. Richemont got into the pre-owned luxury watch business by acquiring Watchfinder.co.uk to gain experience in and try to control this new sales channel. Stella McCartney in 2017 announced a partnership with The RealReal, an online retailer valued at US$450 million that specializes in used but meticulously maintained luxury items.
That’s why it is more important than ever to remember that luxury, more than a product or a service, is an experience. It means creating the conditions for a client to live a brand and its history, allowing her to embrace its values as if they were part of her own identity and lifestyle. And brands must make clients feel special, intoxicated by the uniqueness and exclusivity associated with those experiences.
Quality and even price no longer serve as good gauges of what is luxury and what isn’t. There are expensive products and luxury products because there are brands that sell superb products, and brands that on the top of that offer memorable and highly personalized experiences.
One of the biggest challenges for luxury giants is to squeeze the massive amount of data out there to better personalize their offerings and to adapt in real time to the fast-changing tastes of young clients. It’s also crucial to modernizing brick-and-mortar stores, creating all-immersive experiences as Tiffany, Cartier, Boucheron and Audemars Piguet have done. Creating omnichannel retail experiences that integrate mobile apps – including the use of virtual and augmented reality technologies – is the future of luxury. Companies must learn to tell their brands’ stories in a new way if they want to remain relevant among the younger generations. And of course, the toughest and most brutal challenge for luxury brands will be to innovate until they can transform the online purchase in a truly significant and magical moment.