Established brands could learn a thing or two from some of their more
inexperienced, yet more innovative peers. On a quest to engage the
luxury consumers of tomorrow, novice, tech-focused players are employing
new tools and strategies that are revolutionizing retail as we know it.
That shift starts with fast fashion. Pressure to produce unique collections, on the fly, is a reality for players big and small... and it's a mode of survival for novice brands. Other strategies include pop-up stores, online customer communities, always-on marketing, and direct-to-consumer models, big data, automated supply chains, and agile ways of working. This should serve as a call to action for established brands, who will need to transform themselves if they want to stay relevant.
Like technology and the fresh, unorthodox B2C strategies being built around them, next-gen luxury consumers are, in the same vein, becoming more and more crucial to vanguard brands. Generations Y and Z will be the engine of luxury sales in the future, representing approximately 55% of the market by 2025. Among them, China’s Gen Z is the segment to watch. Known as impulse buyers, this group currently enters the market with significant spending power and confidence.
The next gen consumers simply do not shop the same as their parents and their great-grandparents. In fact, their unique preferences and views are beginning to revolutionize the market and are contributing to several macro trends in the luxury market.
- Online experience. Digital technology is disrupting the entire luxury value chain, calling for a holistic redesign of the technology ecosystem. We expect that around half of all luxury purchases will be digitally enabled by 2025, and almost all will be influenced by online interactions.
- Post-ownership mindset. A paradigm shift in consumption is underway, favoring access over ownership. The secondhand market, for instance, is expanding outside the traditional boundaries of leather bags and into other categories, such as limited-edition sneakers. Fashion subscription services, which allow customers to rent rather than buy, are also on the rise.
- Focus on values. Sustainability and social responsibility have become fashion’s new mantra, which is consistent with younger consumers’ focus on the environment, labor issues, and animal welfare.
- Cultural shifts. Religious, ethnic, and other groups and subcultures are gaining influence in the marketplace. One example: the rise of “inclusive fashion” for curvy or plus-size customers.
- Convergence of categories. Consumers are increasingly mixing luxury and mass-market fashion, with purchases guided by values and ideas rather than aspiration. Streetwear and sportswear have become powerful forces, uniting fashion under a single hat, regardless of price.
Overall, Bain & Company expects jewelry and shoes, as well as handbags and beauty, to drive the sector in 2019, just as it did in 2018. The global market for personal luxury goods – apparel, accessories, beauty products, jewelry and watches – continued to shine in 2018, hitting a record- high €260 billion and posting year-over-year growth of 6% in real terms. Looking ahead through 2025, we project solid growth of 3% to 5% per year, driven by positive fundamentals and a break from the past. Old habits die hard. And luxury faces a future that, for the first time, lies in the hands of the young.
Claudia D'Arpizio is a partner with Bain & Company in Milan and the global leader of the firm’s Luxury and Fashion vertical. She is also the lead author of Bain’s annual Luxury Goods Worldwide Market Study.
Peter Xu (centre) with friends.