Despite continued economic uncertainty, the luxury brand sector is booming. According to Bain & Company the sector grew by more than 19% in 2022, adding more than £230bn to the trillion dollar market of luxury products and experiences. Luxury brands are experiencing a renaissance in an era of uncertainty, demonstrating their extraordinary resilience, to recession and pandemics.
Luxury is however no longer just for the wealthy few buying Birkin bags, Swiss watches and 81 year old whiskies in an era of conspicuous consumption. Luxury has become accessible to more consumers who prioritise items of luxury as part of their portfolio of purchases. For example, young, rich and mortgage free consumers are increasingly spending their cash on luxury items as investment pieces even while many may still be living on the bank of mum and dad.
Luxury means different things to different people.
The cost of living crisis as well as growing concern about the impact of global commerce on the planet means that consumers are reassessing the value of everything they buy and the cost, to the planet, of their purchases. Essentially, what ‘luxury’ means to individuals is also changing as the sector expands.
For most people luxury is really about having something that not everybody else has or uses. This exclusivity will remain a huge driver for luxury brands. They will continue to invest in campaigns and brand growth strategies that showcase their distinctiveness.
Gucci for example uses the digital experiences it creates as one of the ways that it defines its uniqueness. It has successfully blurred physical and digital boundaries and is the first major luxury brand to build a digital world in the metaverse offering users an experimental space where they go on a journey through the brand’s history through games and NFTS and sell virtual versions of their products to metaverse users.
Gucci’s venture appeals to the first generation of consumers that have been completely brought up in the digital age, Generation Z. The handbag, belts and luxury accessories maker surpassed €10bn in revenues for the first time this year. Investment bank Morgan Stanley has predicted that digital fashion could increase the industry’s sales by $50 billion by the year 2030.
But vying for distinctiveness can also sometimes backfire. Sister brand Balenciaga, which had an excellent 2022 that included a collaboration with Gucci, took a sales hit earlier this year after it ran an advertising campaign featuring children with plush toys in bondage gear.
Luxury could also be about buying more sustainably
Climate conscious millennial and GenZ consumers, who are currently driving luxury sector growth, expect the brands that they buy to be aligned with their increasingly socially conscious values.
Buying less and less often, isn’t just for younger generations. All age groups are shopping more sustainably, or at least trying to. They want to find better quality products that will stand the test of time and not end up in landfill. In fact more fashion brands, including British retailer Me and Em, are trading on the ethos that they eschew the environmental and social impact scars left by fast fashion and position themselves as creating affordable luxury items that last forever.
Leading luxury brands are also highly focused on their sustainable credentials. Chanel was named in a Statisa study as the most sustainable luxury brand.
The French fashion house’s ESG efforts made the brand a leader in the luxury fashion industry with its focus on renewable energy and sustainable skincare lines. It is also very active on the Chinese social media platform WeChat.
Luxury brands know that excelling with innovative products and a superb brand experience is no longer sufficient to guarantee success. They think not only about how things are made, but by whom, under what conditions, and whether their materials are ethically sourced.
More consumers are opting to rent instead of buy luxury goods to satisfy their lust for luxury and meet their ‘be kind to the planet’ goals by reducing their consumption of fashion. The secondhand luxury goods market was estimated by Bain to be worth more than $30 billion bn by the end of 2021. Sites such as Rent the Runway, one of the most popular design rental destinations and Hirestreet are driving phenomenal growth in this sector.
As consumer classifications change, brands in the middle or premium end of the market could trade up to be considered as more of a ‘luxury’ purchase for some shoppers. By focusing on their differentiated brand proposition, they can achieve premiumization; expanding their reach to luxury buyers trading down or appealing to people who feel that buying a quality product provides them with a much needed or feel-good treat.
Younger people may drink fewer units of alcohol for example, but then purchase a premium alcohol beverage such as a single malt whisky or champagne. For many millennials, the ‘luxury’ experience or purchase helps them to feel connected with influential people such as celebrities and is something they can share on social media to reflect or mark their status in life.
Standing out in a sea of sameness
The brands people buy, wear and use, particularly as luxuries, are often a true reflection of their status and place in the world. Who else wears or uses those brands and what those connections mean are important considerations. In a world where so much is the same, people are still searching for ways to differentiate themselves.
To be considered as ‘luxury’ in status, our research shows that brand image and distinctiveness play a greater role in driving luxury credentials for consumers than the product quality and craftmanship itself, which is simply expected. Everything else is brand positioning and perception.
Arguably a quality product that is highly desirable, even to the more conscious consumer, can become a luxury item. The NewYork Fashion Week designer Gabriela Hearst for example makes eco-conscious designs and is fashion’s first luxury BCorp.
Brands that want to premiumize by investing in their luxury brand image need to focus on their distinctiveness as much as the quality and craftmanship of their product. What do they stand for? Who else values it? They can then look to drive long-term luxury growth that commands premium pricing. Research and insight can help to understand the drivers of luxury in specific categories and the different role of factors such as brand, product and status across markets. Profiling and targeting audiences more engaged with luxury brands can also help to optimise brand strategy.
Some successful luxury brands are also able to stretch into new luxury categories. Louis Vuitton successfully expanded into perfumes, fine jewellery, and home décor for example as well as entering the tech market with its Tambour Horizon smartwatch. Versace has just launched a luxury SUV in collaboration with Lamborghini and Hermès, a luxury brand that is known for its leather goods and high-end fashion, has high-end bicycles. You will need to evaluate which brand strengths and opportunities that best link to your brand’s positioning.
This is the age of philanthropic luxury retail
The most successful brands in future will deliver a luxury brand, product and experience. They will successfully blend physical and digital luxury experiences, as Gucci has done, to deepen their engagement with consumers across multiple touchpoints.
And as more brands trade up or premiumize their products and enter the ‘new era of luxury’, the current coterie of luxury brands will want to protect their price point. They may be resilient, but they are not completely recession proof or immune from competition. Perhaps they need to move into the ‘super luxury’ category?