Digesting 4 luxury reports and analysing data from Altagamma, Bain & Company, Boston Consulting, McKinsey and Mintel, LUXUO breaks down the State of the Luxury Industry, its future trends and the evolving needs of the next generation of consumers
Since consulting firms like Altagamma, Bain & Co., Boston Group and Mintel have been tracking the growth of the luxury industry on both the consumer and brand side of the spectrum, we’ve seen the luxury goods sector expand exponentially over the last decade. According to Altagamma Worldwide Luxury Market Monitor, the global luxury market has growing twice as fast as global GDP, on track to hit 1.26 trillion euros by end 2019.
True-Luxury consumers generated 30% of the luxury market or 278 billion euros, expected to hit 395 billion euros by 2025
Since consulting firms like Altagamma, Bain & Co., Boston Group and Mintel have been tracking the growth of the luxury industry on both the consumer and brand side of the spectrum, we’ve seen the luxury goods sector expand exponentially over the last decade. According to Altagamma Worldwide Luxury Market Monitor, the global luxury market has growing twice as fast as global GDP, on track to hit 1.26 trillion euros by end 2019.
True-Luxury consumers generated 30% of the luxury market or 278 billion euros, expected to hit 395 billion euros by 2025
The luxury goods sector is also rapidly changing, buffeted by the ebbs and flows of geopolitical and socio-political upheavals. Just two years ago, one could depend on an European metropolitan city like Paris to be a bellwether of luxury growth, named in 2017 by real-estate research firm Savills as capital of luxury retail after it experienced the biggest growth in terms commercial luxury boutique openings. In the East, one could look to Hong Kong, an Asian financial hub where the world’s top brands situate their regional headquarters.
Luxury casualwear segment continues to grow: now affecting 74% of True-Luxury consumers, with still further expected growth in spending (driven by sneakers and jeans). This data shows why it’s the smart move for Kering to look into acquiring Moncler
Past, Present and Future: State of the Luxury Industry 2019, looking towards 2025
According to the BCG Luxury Market Model, 75% of the 2018-25 market growth is expected to come from Chinese True-Luxury Consumers
Today, both cities are a battlegrounds for colour-coded protestors: Yellow vests along Champs Élysées and black shirted rioters along Tsim Tsa Shui. Once proudly only “Made in France” labels like Louis Vuitton are setting up factories in the United States, with farsighted Chief Executives like Bernard Arnault, keeping a step ahead of trade wars as US President Trump up-ends decades of geopolitical and economic stability in the developed world.
As the year comes to a close, the luxury market too has become a battleground every inch as heated as the socio-political, trans-national issues which fester. LVMH, looking to shore up its hard luxury segment (aka watchmaking and jewellery credentials) went on a shopping spree, acquiring American jeweller Tiffany & Co. (keeping in mind that a historic arrangement means that Patek Philippe watches are offered in Tiffany boutiques as well – it needs to be seen if LVMH would be selling Patek Philippe watches by proxy when the acquisition is confirmed mid-2020), Kering Group a fierce rival, has leaned into its soft luxury (couture and leather goods) advantage, attempting to diversify its dependence on Gucci with fast growing alpine streetwear label, Moncler. Richemont Group too, has been shopping – acquiring pre-owned watch retailer Watchfinder (by proxy, becoming the largest pre-owned Rolex dealer in the UK) and doubling down on eCommerce as it inks deals with Alibaba and makes further investments into Net-A-Porter. While the strategies of the world’s biggest conglomerates differ, the objective is the same – competitors struggling for a shrinking share of consumer spending, even while the ranks of the wealthy rise, exacerbating income inequality with a corresponding shrinkage of the middle class.
“Young Chinese consumers view ownership and affiliation with designer brands as a form of social capital. (They are) not just something to wear, but a lifestyle choice that marks them as part of a distinct and exclusive community. Most these young consumers are fresh to market, presenting both a tantalising opportunity and an implicit imperative for brands to stay current, or risk losing out to more digitally savvy rivals.” – McKinsey Luxury China Report 2019
The biggest trends in Luxury to watch
Despite a recent contraction in fine art sales and fluctuations in jets and yachts, demand for luxury continues to grow: 8% overall compared with the previous year. On the back of rising Chinese wealth, the injection of millions of new luxury consumers has altered traditional dynamics of the luxury industry, creating a $1.2 trillion euros market. 10 years ago, Chinese shoppers were less than 15% of the global luxury consumption, this year, they accounted for 35% of the market and is expected to rise to 40% by 2025.
More than 100 million Chinese in the top 10% of the world’s wealthiest and that these families overwhelmingly (83%) want their scions to get educated in the West, that is to say UK and US. That’s a lot of wealthy Chinese students with annual personal expenditures of just under 35,000 euros.
According to the BCG Luxury Market Model, 75% of the 2018-25 market growth is expected to come from Chinese True-Luxury Consumers. Defined by the Boston Consulting Group in 2015, as those born and raised in the lap of luxury, where compromising with brands and products is not an option. This category of luxury consumer is about exclusivity and customisation these type of customers do not like to experiment and purchase luxury to reward themselves.
Globally, True-Luxury consumers generated 30% of the luxury market or 278 billion euros, expected to hit 395 billion euros by 2025 with the bulk of the growth coming from three other categories: the Status Seeker, defined by BCG as “followers” unlikely to experiment and buying well recognised luxury products to show off wealth and success; the Little Prince, consumers aged 18-25 to whom luxury consumption comes as a second nature as a result of being born into wealthy families. To this group, luxury is about innovation and being cool and while they are statistically impulsive shoppers, meaningful interaction with the brands is especially important. Additionally, they are top spenders on travel; Finally, the Fashionista, a penultimate trendsetters and consumers of fashion, knowledgeable on all brands and prevailing trends. These highly opinionated shoppers love experimenting with different styles, seeking fun and creativity in products and brands.
Millennials, typified as the Megacitier category of consumer, defined as shoppers where luxury is about the latest trends, quality and customisation with global aspirations; a predicted to grow from 32% to 50% of the personal luxury market by 2025. A confluence of Credit Suisse estimates and McKinsey Luxury China Report 2019 underscores another specificity of great importance -that there are more than 100 million Chinese in the top 10% of the world’s wealthiest and that these families overwhelmingly (83%) want their scions to get educated in the West, that is to say UK and US. That’s a lot of wealthy Chinese students with annual personal expenditures of just under 35,000 euros.
Meanwhile, the generation expected to supplant millennials only represents 4% of the personal luxury market at the moment but Gen Z consumers exhibit behaviours and values that will set the tone for the future of the luxury industry.
Evolution of Luxury Consumer Wants and Needs
China has rapidly shifted from a market of Classpirational (Unsophisticated luxury consumers who played it safe and stuck to trusted brands) and Status Seeking consumers into a more sophisticated generation of luxury consumers – these will be the key drivers of the luxury market’s growth – they’ve come to shape luxury’s new aesthetics in almost all aspects, particularly watchmaking. At the same time, the luxury needs of these Chinese consumers are not uniform and defy generalisation – it seems to be a common refrain given the semi-regular stream of self-inflicted faux pas when it comes to Eurocentric brands attempting to communicate with that market.
The next generation luxury consumers, Gen Z have a unique set of behaviours and values, and brands should start understanding them better
Technological disruptions like the rise of digital marketing and eCommerce have increased complexities in the luxury communications landscape. The new media reality means that there are additional pressures on the brands to maintain a constant stream of content and new releases in order to maintain mind share, hype and awareness but also a growing burden to communicate to the mass market in such a way that it’s culturally inoffensive (at best) or politically correct (at worst). On the consumer side of things, social media platforms like Instagram and Pinterest have also contributed to the increased demands for “freshness” – giving rise to collaborations and with awareness reaching ~90% of True-Luxury consumers, the importance of collaborations cannot be overstated.
With awareness reaching ~90% of True-Luxury consumers, the importance of collaborations cannot be overstated
An Era of Growing, Cross-Genre Luxury Collaborations
Not to be confused from an earlier, 1960s era of licensing when Christian Dior’s name could be found on everything from small leather goods and hosiery; this era was nevertheless an early experiment when luxury brands wanted to cash in on the emerging middle class segment which was spending a lot of money on mass market “masstige” labels. No doubt, the masstige segment still exists today but the mechanics and mechanisms at play are very much different. Pierre Cardin remains on of the few case studies where his name could be found on countless items with limited oversight or quality control eventually destroying all good will and “luxury” associations with the couture brand it originally was.
Have you ever purchased special editions created by brands in collaboration with different artists/brands?
Today, what was once considered brand dilution is now seen as brand enrichment especially as creative directors play musical chairs (think about it – Only Mrs. Prada has been at the helm for 30 years) across the industry, at times even remaking their new charges into their own image; ironically, these collaborations provide some semblance of “continuity” while allowing brands once locked into strict seasonal cycles to leverage on non-seasonal ‘drops’ or capsule collections popularised by streetwear labels like Supreme.
The luxury collaboration of the modern 21st century is a masterclass in branding and communications. All throughout fashion history, there have been trickle-up and trickle-down, or simply unabashed selling out, but luxury brand collaborations with mass-market or high street labels have proven fruitful. From the H&M collaboration with Jeremy Scott’s Moschino to Vivienne Westwood’s capsule collection for Burberry, fashion collaborations are not only going strong but proving so irresistible for all parties involved that one of the hottest trends in retail have now crossed genres – Hautebeast – essentially taking the hype of streetwear and marrying it with the haute of couture.
While still maintaining an aura of exclusivity and luxury, we are in an age where brands making cross-genre collaborations which were once upon a time considered taboo. Case in point: Gucci and infamous counterfeiter (and former lawsuit litigant), Dapper Dan. Similarly, Louis Vuitton and Supreme. Even in instances where a match of talents is not readily apparent as in the case of Adidas (previously Nike) and Kanye West, the partnership has always been immensely gratifying and commercially successful from both a commercial and communications standpoint.
Most popular brand collaborations by market
From a consumer standpoint, though the brand-artist collaboration is evenly split across the market, the key indicators representing luxury’s future consumers – the Millennials and Gen Z are overwhelmingly positive – 60% and 67% respectively. With 40% of Gen Xs considering it important as well, the data is substantive for brands to continue down this path.
The emblematic collaboration between Louis Vuitton and Supreme sold out at eight pop-ups around the world and has been so critically and commercially successful that resale value, once never an indicator of success now sees multiples of its initial retail price: the iconic red keepall can now be found on eBay and StockX for around 17,000 euros, almost six times the original sticker price. Elsewhere, there’s also been the unexpected combinations of Fendi and Fila, Polo Ralph Lauren and Palace; JW Anderson and Converse, the list goes on. To digress a little, the platform StockX arose as a means of tracking pre-owned sales of Kanye’s Yeezy sneakers and has seen expanded into the pre-owned watch arena.
September 2018, StockX closed a $44 million funding round from investors including GV, the investment arm of Google’s parent company. The company expects to hit $1 billion in annual transactions if growth continues on its current trajectory.
Technology, Digital Disruption and Rise of Pre-Owned segment
It used to be that retail price of luxury goods was only available in store, but the rise of the internet and other digital technologies have increased not just the availability of pricing but also the potential to monitor and track the pricing of how these luxury goods do on the secondary market. Digital platforms have democratised and demystified the luxury goods market, replacing consignment stores and providing a seamless experience that guarantees authenticity and quality.
September 20198, StockX closed a $44 million funding round from investors including GV, the investment arm of Google’s parent company. The company expects to hit $1 billion in annual transactions if growth continues on its current trajectory.
The rise of the internet has opened the door to new competitors. Exposed to a constant stream of styles through social media, the luxury consumer is not only tempted to own more products but also concerned about sustainability and access to luxury goods at a better price/quality ratio. Additionally, with limited quantities of collaborative works and special capsule collections like Chanel & Pharrell, Adidas & Yeezy, Louis Vuitton & J. Koons, often, the only way to acquire highly coveted editions is through digital pre-owned marketplaces, furthermore the ability to garner more eyeballs through sharing on social media extends the reach of these suppliers beyond bricks-and-mortar consignment shops. This phenomena is especially true in the pre-owned luxury timepieces segment where a major luxury conglomerate like Richemont Group has taken pre-emptive measures in acquiring Watchfinder.com as its pre-owned sales platform of choice. On a macro-scale, other brands like Audemars Piguet, MB&F, Vacheron Constantin and Omega have either begun experimenting with “authorised pre-owned” sales at a specialised boutique level or are planning to implement their strategies on a more global retail scale.
The last decade has seen digital multi-brand and grey market players offering brand new products at discounts, tempting shoppers away from full-priced brand portals and indirectly circumventing the eCommerce ambitions of luxury brands. While there is plenty of rumour and gossip about brands themselves manipulating grey market dealers behind the scenes by releasing overstocked products to them, the situation is further exacerbated by the rise of e-tailers backed by tech innovators launching digital brands offering significantly transparent production and logistic details, delivering well-made goods without the overheads of rental and burdensome human resource payrolls – the effect of similar or equivalent products at significantly lower price points short circuits the ambitions of fashion brands to sell online at full price.
At the same time, digital disruption from China like WeChat and AliBaba platforms are also forcing brands to invest heavily, if not outright double down like what Richemont Group has done with Yoox Net-A-Porter and Alibaba, on their eCommerce efforts as well as innovate ideas in order to ramp up visitors to their bricks and mortar stores through temporary pop ups and brand exhibitions.
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