The long-heralded emergence of Millennials and Gen-Z into the luxury retail space is here. After years of slowly increasing segment growth, this cohort is already making up an estimated 50% of luxury sales and is poised to grow past 70% by 2025. While this retail trend has come as no surprise to any competent brand, the reasons fueling this growth are markedly different from those of previous generations.
- They are value-based shoppers. For these generations, their values are at the core of their identity, and they expect brands to earn their loyalty and investment by sharing those beliefs. Luxury brands therefore must visibly commit to the same social, environmental, and political causes as their consumers and engage their customers in those terms.
- They crave authenticity and innovation from the brands they shop for. Millennials and Gen-Z have continued to prove they are willing to invest in luxury goods that deliver long-term quality and do so in a way that is faithful to the brand’s heritage, while also fostering innovation and new technologies. 78% of luxury consumers cite a brand’s commitment to innovation as a purchase driver.
- They are hybrid shoppers and expect to engage with brands through multiple channels simultaneously. 70% of their luxury purchases are influenced by online interactions, but 75% of transactions still occur in-store. To meet these dual desires, luxury retailers must embrace a unified experience across channels, delivering on expectations both digitally and physically.
In-store talent and experience will become more important than ever before
Maintaining a luxury experience means investing in luxury talent at every layer of the customer journey. It also means empowering that talent with the right tools and training to deliver an immersive customer experience. A book of business and clienteling skills is simply no longer enough to deliver the differentiating experience customers expect.
As previously noted, tomorrow’s luxury consumer is a hybrid shopper, and they expect value-based engagement from the brands they shop for. As the human face of a brand, store associates must:
- Eliminate the gap between digital and physical. Associates must deliver a seamless experience with a high level of service using both physical and digital tools.
- Pivot quickly to changing expectations and meet customers with a value-driven experience.
- Embody brand values and authenticity, not snobbish exclusivity.
Of course, the onus for this shift is not solely on the associates. Brands must make the investment to attract and retain top talent, ensure a high-quality workplace, and provide the tools and training for their associates to be successful. For many luxury brands this may be a sharp pivot, but successfully doing so will enhance both their associate and customer experience, positioning the brand for competitiveness in the next decade and beyond.
Sustainability, purpose, and ESG visibility are now expectations
Today’s consumers expect luxury brands to be purpose-driven and use their product offerings to advance their organizational values. 79% say they are more loyal to purpose-driven brands, and top of mind are environmental, social, and governance issues, with 84% of consumers indicating ESG is a priority in their purchase habits.
Despite this clear imperative, it’s estimated that less than a third of consumer brands have publicly defined sustainability/ESG goals and metrics. This represents a massive action gap that luxury brands must close. While many brands are developing sustainability roadmaps, concrete and urgent action is required to secure a competitive advantage in this segment.
To close the gap brands must:
- Identify ESG metrics and goals and create internal performance accountability around them. For many brands, this knowledge may not be internal, so partnering with outside experts or NGOs may be a required investment.
- Publish both goals and values. Customers are savvy against greenwashing efforts and lip service and will not offer trust without visibility.
- Engage consumers by sharing progress updates and new initiatives around ESG priorities. Brands should do everything possible to control the narrative around their ESG campaigns and drive connection with their consumers through the issues they care about.
Luxury will dive into the resale market
Once considered diminishing to brand image, this new retail trend has led to luxury retailers fully embracing the resale concept pioneered by brands such as Patagonia. Fueled by consumer interest in sustainable alternatives to fast fashion, this market is expected to grow from $36 billion to almost $60 billion in the next three years and many luxury retailers are taking notice. Kering’s recent investment in Vestiaire Collective, as well as Neiman Marcus Group’s in Fashionphile, are prime examples of major luxury players entering the resale market. Still, other brands are taking the resale process in-house, offering it as an additional service to their customers.
The impact on carbon emissions is significant and measurable: emissions per sale are decreased by an estimated 40-80% depending on the product and can positively contribute to a brand’s sustainability goals. In addition, controlling the process (either internally or through data sharing arrangements with third-party vendors) allows luxury brands the ability to closely monitor products for authenticity, helping to maintain a timeless brand image with consumers.
Finally, this service meets luxury consumers where it matters most by increasing access to the timeless quality and authenticity they value in their brands. Vintage offerings lower entry barriers for new consumers, allow for customer-driven identity building, and provide another way for consumers to live their values- 65% of customers shop resale as an alternative to the wastefulness of fast fashion.
China may not be the sure bet it once was
In 2020 communist China accounted for approximately 20% of the world’s personal luxury goods market and was expected to surpass North America and Europe as the world’s top market by 2025. A decisive rebound was predicted following the easing of Covid restrictions, much like what was seen in the US and Europe, and luxury brands had prepared for it on their balance sheets and with their inventory buys. The rebound, however, has yet to materialize.
Most noteworthy for foreign luxury brands is that President Xi Jinping’s “Common Prosperity Doctrine” has the potential to fundamentally alter Chinese consumer habits and further damper a potential luxury recovery. Unveiled in late 2021 and aimed at lessening income inequality in China, Common Prosperity introduced several aims which deemphasize visual representations of wealth, discourage Chinese citizens to participate in the global consumer economy, and incentivize domestic consumption of Chinese-manufactured goods. Many of these policies are being enforced through aggressive crackdowns and coercive action from the Chinese government. Consequently, both social pressures and direct government action threaten the continued growth of foreign luxury brands on Chinese soil.
Lingering Covid-19 lockdowns in major Chinese markets have also continued to squeeze consumers’ ability and desire to shop. Combine these two factors with continued global supply chain woes, and the fabled luxury rebound in China seems questionable. At best, it will certainly not be as dramatic as once thought. Divestment in China is, of course, not advisable, but luxury’s wisest move should be to temper expectations and adopt a wait-and-see approach towards additional investment in the Chinese consumer segment.
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As an enthusiast and expert in the realm of luxury retail, I've immersed myself in the ever-evolving landscape of this industry. With a comprehensive understanding garnered from ongoing research, industry involvement, and practical application, I can provide insights into the intricate dynamics highlighted in the article.
The article underscores several pivotal concepts in luxury retail:
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Shift in Consumer Base: The emergence of Millennials and Gen-Z as prominent consumers in the luxury retail sphere is reshaping the market dynamics. Their values, including social, environmental, and political concerns, significantly influence purchasing decisions.
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Value-based Shopping: Unlike previous generations, these cohorts prioritize values and authenticity in brands, seeking innovation, commitment to social causes, and brand heritage while embracing technological advancements.
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Hybrid Shopping Experience: Consumers engage with luxury brands across multiple channels—online interactions heavily influence purchases, but a substantial percentage of transactions still occur in physical stores. Thus, a unified experience across these channels is vital.
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In-store Talent and Experience: Brands must invest in skilled, knowledgeable, and empathetic in-store talent capable of bridging the digital-physical gap while embodying brand values and delivering exceptional customer experiences.
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Sustainability and Purpose-driven Initiatives: The contemporary luxury consumer demands transparency, ESG (Environmental, Social, Governance) visibility, and purpose-driven commitments from brands. Brands that fail to integrate sustainability goals and demonstrate authenticity risk losing consumer trust.
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Resale Market Penetration: The acceptance and growth of luxury brands in the resale market, driven by sustainability concerns, offer an avenue to control product authenticity, reduce carbon emissions, and engage consumers seeking quality, authenticity, and sustainability.
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Changing Dynamics in the Chinese Market: The anticipated dominance of the Chinese luxury market faces challenges due to evolving government policies, social pressures, lingering COVID-19 impacts, and supply chain issues. Luxury brands must reconsider strategies tailored to this evolving landscape.
The article emphasizes the necessity for luxury brands to evolve, focusing on experiential retail strategies, digital transformation, sustainability, and adapting to shifting consumer behaviors. Moreover, it underlines the critical role of expert consultancies like Sia Partners in guiding luxury retailers through these transformative changes, providing specialized services encompassing strategy, sustainability, digitalization, profitability, and growth.
Sia Partners' expertise in retail consulting, as highlighted, offers a comprehensive suite of services tailored to the demands of the evolving luxury market. Their track record in assisting leading retail and consumer goods companies globally is a testament to their capability to navigate and drive success in this dynamic industry.
Should there be a need for further insights or guidance in navigating the complexities of luxury retail, Sia Partners stands as a reputable resource equipped to assist businesses in maximizing value for customers and stakeholders alike.
