THE EVOLUTION OF LUXURY FOR MILLENNIALS AND GEN Z CONSUMERS
Consumer spending on luxury goods is expected to reach $348 billion in 2023, according to Bain & Company. While the reported Credit Suisse Global Wealth Report 2023 states the number of ultra-high-net-worth individuals (UHNWI) with a net worth of $30 million or more increased by 9.2% in 2022. This growth is only expected to continue in the coming years, providing an additional boost to an already buoyant luxury market.
The largest segment of the luxury goods market is fashion, which is expected to generate $27.15 billion in revenue in 2023 according to the Statista report, with other major segments including accessories, watches, jewellery, and beauty.
As far as luxury goods are concerned, the United States and China are the world’s largest markets for luxury consumption, However, India is snapping at their heels with the largest increase in uptake of luxury goods and services. While there are other markets such as Saudi Arabia that are deregulating and welcoming luxury brands to help support their long-term economic vision.
Wider than this, a growth market (that’s often overlooked) is Italy. As a result of a favourable tax regime, good climate, stable politics, rich culture, and great food, Italy’s HNW population is expected to double by 2030. As HNWIs and UHNWIs are fluid in their residences, Italy is likely to steal some of the limelight from other traditional homes for the very wealthy such as London and Paris.
Despite the current economic challenges, the demand for luxury goods remains high: The Bain and Company’s study in collaboration with Fondazione Altagamma, the trade association of Italian luxury goods manufacturers, reported:
“After a severe contraction in 2020 due to the Covid-19 pandemic, the market grew back to €1.15 trillion in 2021 and surprised everyone in 2022 by further growing 19%–21%, according to our estimates.”
Shifting priorities
However, some potential headwinds could impact consumer spending on luxury goods – with food and energy security still a concern as well as shifting priorities of next gen consumers. Therefore, luxury brands need to embrace the behaviours to stay current and grow against their peer set.
Sustainable, environmental, and ethical practices
As consumers become more environmentally and ethically conscious, they’re starting to make purchasing decisions based on these values. And there’s real pressure for brands to demonstrate these credentials in a transparent, authentic way.
More than this, with a raft of legislation coming from the EU and US between now and 2030, luxury brands will be forced to take action. For luxury businesses it will be about getting ahead of the curve and delivering this in an authentic manner that resonates with their consumers’ beliefs.
The great wealth transfer
As the ‘Great wealth transfer’ occurs over the next 10-15 years (around $68 trillion is to be passed to the next generation), luxury brands will need to follow the trends and values of the millennial and Gen Z cohort.
But what does that look like?
- Diversity in investments – not just moving from oil to wind, but across all investments, for example, collecting trainers rather than oil paintings.
- Great care and responsibility for the environment and labour laws.
- Better consideration for mental health, women’s rights, and support for minorities and people from underrepresented backgrounds.
EMBRACING TECHNOLOGY
The next generation will be the largest and wealthiest generation in history, but this will come at a time when they have grown up with technology and used this as a core pillar of their lives since childhood.
Brands will need to supercharge their integration of technology without losing the understanding of their wealth consumer.
The Bain & Company report estimates that by 2030, the global luxury goods market will reach $540-580 billion – nearly double today’s value. So luxury brands need to plan for tomorrow, taking account of consumers’ tastes and preferences as they change,
We can see examples of some of the bigger luxury brands that are already embracing this change:
- As part of its commitment to sustainability and social responsibility, Gucci has developed a number of initiatives, including its “Gucci Off the Grid” collection, which uses sustainable materials. Moreover, Gucci promotes inclusivity and diversity, featuring models from various backgrounds in its advertising campaigns.
- Burberry has stepped up its efforts to engage Gen Z shoppers by launching a “B Series” collection designed in collaboration with young creatives, as well as several social media campaigns focused solely on this demographic.
- Dior has also launched several initiatives to offer its customers unique and personalised experiences, including ‘My Dior‘, which allows customers to customise the products they purchase. A number of pop-up stores and events have also been launched by Dior to appeal to Gen Z consumers.
- Louis Vuitton’s Treasure Trunk (not available in the UK yet) has introduced membership and loyalty programmes that provide exclusive access to events, private shopping experiences, and limited-edition products. These programmes foster a sense of community and exclusivity.
Another area we have seen luxury brands explore and create value is into new categories, such as travel and experiences.
Some high-end fashion and lifestyle brands have ventured into the travel and hospitality sector. They have opened boutique hotels, resorts, and restaurants that embody their brand’s ethos and offer an exclusive experience to their customers.
Bulgari and Armani, for instance, have luxury hotels around the world in locations where discerning travellers are looking for truly exclusive experiences. These hotels offer personalised service, unique experiences, and high-end amenities. They’re carefully tailored to reflect the essence of the brand and provide an exclusive and luxurious escape.
Navigating the evolution of the luxury market
Luxury brands must navigate these potential headwinds by staying attuned to consumer sentiment, adapting to changing market conditions, and diversifying their strategies to address consumer needs. This might involve sustainability initiatives, digital transformation, innovative marketing, and a focus on catering to evolving consumer tastes and values.
Overall, the growth of the luxury market is a positive sign for the global economy. It shows that consumers are still willing to spend money on luxury goods, even in the face of economic challenges. This is good news for the luxury goods industry and for the global economy as a whole.
If you would like to speak to us further about how to tap into luxury consumer behaviour to develop integrated marketing campaigns for now and into the future then please get in touch.