The luxury brand market has never looked so good!
Worldwide, the luxury brand market expects to reach € 915 billion this year. According to the latest Deloitte global ranking, France continues to lead the luxury brand market with a total of nine luxury groups accounting for 24.3% of total worldwide sales.
According to Bain & Company, new consumers and consumption habits are projected to expand this market to € 1260 billion and continue until 2025.
Who are these new consumers?
The Chinese Emergence
Originally, the growth of the luxury brand market was supported by baby-boomers, then by the Japanese and United Arab Emirates until recently when Chinese consumers began to dominate the market. With the increase in living standards leading to the emergence of the middle class, Asian countries are at the heart of growth strategies for most brands. Sales in mainland China have grown by 18% in 2017 after a two-year crisis that spread doubt in the market (figures reported by Claudia d’Arpizio, partner at Bain).
Additionally, geography plays a large role in the luxury brand market. For example, European consumers prefer to buy in their region (75%), then abroad (19%) or at the airport (6%). These statistics are similar for Asian consumers who represent the major consumer market with 62% buying luxury goods in Asia, 16% buying luxury goods at the airport, and 22% buying abroad.
“Asian customers claim to buy their luxury goods abroad mainly because they can not find it at home. For luxury brands, it would be interesting to offer, especially to Chinese people who tend to make their shopping list, an international click & collection” explains Christophe Cais, Founder and CEO of Albatross.
However, generally speaking, customers worldwide are changing and have very different desires. Therefore, they need to be observed and understood in different ways.
Millennials, the Customers of Tomorrow
Generation Y is projected to expand the luxury brand market and represent 50% of consumers by 2024 according to the BCG. Note that 93% of luxury brands are now present on Instagram and Twitter which is the second most used social network in this sector. This indicates that a lot of the luxury brand’s social media is consumed and promoted mainly by Millennials.
By 2025, Chinese and American Millennials could account for 45% of the total of luxury brand sales. This indicates a change in their finances in the next 12 months which would account for 58% of France’s, 46% of the United States and 71% of China’s budget where 20% of the budget would be devoted to Luxury products!
Luxury, More Than a Product or Brand
Luxury brands are viewed as models, and in this case represent societal and environmental responsibilities. Their customers, influencers, celebrities relay on their messages, products, NGOs, etc., and are more demanding about their commitments. For example, Caroline Scheufele, co-president of Chopard, stated the following in regards to Chopard’s partnership with the Alliance for Responsible Mining (ARM) in Colombia, “For more than a century, our finest jewelry and watches have been created by a small community of Swiss craftsmen using traditional knowledge and skills. That’s why we really want to recognize and support the craftsmen who extract the gold we use.”.
Although quality and elegance are two important concepts for luxury customers, we can see that the overall experience is now more important than the purchase of the product itself. “Luxury is not a product, it’s an experience, it’s what sets it apart from luxury,” says Darkplanneur in his book Luxe & Digital. The traditional purchasing process as we know it (recognition of need, search for information, comparison, decision, post purchase) leaves room for a real journey into an exclusive world of products and services.
New Consumption Patterns
It is the weariness of an ever greater number of Westerners and now Chinese who is nowadays pushing the market to change. As consumers start looking for something unique, luxury brands must evolve and adapt to succeed in maintaining the same level of desirability.
For a long time, luxury brands avoided investing in e-commerce for the fear of being confused and lost in a sea of wider distribution. Today, e-commerce represents an annual growth of 20%, and is a preferred method of purchase for consumers.
For instance, Kering saw its online sales increase 60% in the first quarter of 2017 compared to the 12% increase in sales the previous year; an unequaled growth in stores.
The Digital Experience
As for the factors encouraging consumers to buy luxury goods, the reputation and image of the brand are at the top of the list (99% of respondents in 2015 compared to 92% in 2014). However, other factors such as recommendations from their peers and online reviews are increasing.
On average, luxury brand consumers are more digitized than the rest of the population. While the French are 60% more likely to consult the internet every day, Luxe Consumers are 78%. When a French user uses an average of 2.9 digital devices, the luxury goods consumer navigates on 4.3 devices; half “follow” or “like” at least one luxury brand on social networks.
In this context, investing in digital is essential not only to boost sales globally, but to also recruit new consumers and retain them.
Promoting online, especially through social networks, is an excellent way to recruit online and generate foot traffic in stores via the click & collect, E-reservation or eAppointment tools. Also, it is one of the main medias used to promote a brand by generating a buzz around the brand to gain a stronger following. Finally, this communication strategy requires constantly feeding hyper-connected Millennials in order to obtain the right buzz.
The Ultra Customized Experience
The profiles of luxury brand customers are varied with high expectations, therefore, brands must develop different strategies in every store. The customer does not only want to understand the brand, they want to live a unique experience; to be recognized and welcomed by enthusiasts in an impeccable atmosphere.
This aspect is more important because even if digital channels play an important role in the search for information that precedes and leads to the purchase, the store remains the primary place to inquire and buy the luxury product, and allows the customer to leave immediately with their purchase.
It should be noted that own-brand stores are preferred 50% more by luxury customers because they are a guaranteed a successful store experience and quality products; they are ahead of multi-brand (23%), department stores (13%) and the Internet (11%). Therefore, customers prefer physical stores because the buying experience is still not sufficiently experienced on the Internet.
Whether jewelry, watchmaking, textiles, leather goods, perfumes, cosmetics or services, consumers are looking for something unique, products customized for them and not produced in series. All these reasons explain the success of the brands offering more tailor-made products. Customers want to choose the color, material, and length; the more customized a product can be, the better! The trend goes and must go to ultra customization!
Counterfeiting, the Number one Enemy in the Industry
In 2018, counterfeit sales accounted for almost €83 billion in lost revenue for luxury brands, and online sales alone accounted for 31% of this shortfall. These figures were established by the firm R Strategic Global on the sectors of textile, footwear, leather goods, watchmaking and cosmetics.
Luxury companies invest a large part of their resources, both time and money, in order to protect all of their assets. Counterfeiting significantly degrades the brand image for many reasons, and can even be dangerous at the environmental and consumer level as well as at the social level.
Finally, although technology has helped brands protect themselves, it has also helped facilitate the work of fraudsters with the arrival and performance of 3D printers.
What Should we Remember?
Fads, always last for a short period of time because the internet and social networks force more brands to reinvent themselves to maintain their positioning and their market share. This explains why some brands do extremely well for a few years and then are in free fall the following year. With the acceleration of demand imposed by globalization, stock markets or digitalisation, it is more vital than ever for luxury brands to adapt and demonstrate agility to keep up with the pace; only then can luxury brands really survive.
Several questions then arise: how do you respond to these issues? How do you anticipate the constantly changing demand? How do the major luxury brands remain agile while meeting the demand for innovation, hyper customization and permanent immediacy?
It is obvious that the most competitive luxury brands have one thing in common, the constant optimization of their end-to-end supply chain.