Our markets are changing. Customer preferences are different from what they were in the past. They buy more online than from stores. Gen Z and Y has more money than Gen X did when they were in their twenties and thirties- and are willing to spend it instead of saving it. Our quality-conscious buyer segments are better-educated and more insistent on using products that are environment-friendly and made without exploitative labour practices.

Each of the above statements applies to most mainstream industry sectors and businesses today. And yet, few industries can claim to have truly adapted to the new reality of their customers and their evolving expectations. One exception is perhaps the Luxury industry. Admittedly, this is not a homogeneous industry and includes many different goods and services. Bain & Co’s study estimates that personal products, cars and hospitality together accounted for 80% of this nearly €1.2 trillion market in 2017. (Source)

On a global basis, not many industries can boast of a 5% growth in 2017- but here again, the luxury business is an exception. And while this robust growth can be attributed to region-specific reasons such as the buoyancy in China, Europe and Japan, there are other factors at work too. As Davide Lunghi, Projects Director for Tag Heuer (an LVMH brand) points out, travellers represent a major buyer segment. Just think about how many people buy watches, perfumes, beauty products etc. from duty-free shops in airports around the world. Travellers may buy these products as gifts or for personal consumption- but buy they do- and that’s a key driver of growth in this industry. This trend also explains the rise of brand cafes at airports, where brands strive to provide prospective customers and customers with unique experiences, away from the distractions in duty-free stores caused by the presence of rival brands or products.

It is important to appreciate that by itself, having merchandise available in duty-free shops will not guarantee sales. That’s why industry leaders such as LVMH, Richemont Brands, Estee Lauder, Luxottica, Swiss Watch Group and indeed others, are reinventing themselves in order to become more relevant to the fastest-growing demographic segments this industry serves.

A UBS report states that 50% of Gucci’s sales and 65% of Saint Laurent’s sales are to millennials. (Source)“We see that Generation Y and Generation Z are bringing the luxury brands to move away from a dogmatic approach, and to cooperate with street wear brands and artists.”, says Mr. Lunghi. Explaining the many impacts of this strategic shift, Mr. Lunghi points to how luxury brands are specifically doing two things on the supply side:

  1. By sourcing from new corners of the globe they are raising the standard of raw materials; and
  2. Through external collaborations, brands are driving innovation to expand the definition of “luxury” from the traditional “classic” to “casual”, more affordable offerings. For example, LVMH’s collaboration with Supreme has created product lines that are more appealing to Gen Y and Z. By creating products that attract buyers from this segment, business will grow faster.

The Bain & Company study also reports that e-commerce contributed to 9% of the sale of luxury goods, and that by 2025, 25% of personal luxury goods will be sold online. In 2017, online sales recorded a 24% increase over 2016. Mr. Lunghi says, “55% of luxury consumers buying online use mobile phones, and these peaks appear among the youngest generations getting to 75%”. This is an important insight because this is the fastest-growing customer segment for the luxury good market. Luxury brand owners are consciously targeting this segment by changing not just the product offering, but also the buying experience.

Recognizing that Gen Y and Gen Z are Digital Natives who are completely at home in online social media platforms and even rely on them to shape their own opinions and perceptions, the luxury industry is investing heavily in social media, mobile and digital technologies to make its brands more present, visible and responsive. According to a UBS report, Gucci has 20.3 million followers on Instagram. Louis Vuitton has 20.7 million followers on Instagram, and 33 percent of its customers are millennials. The same report also mentions that “Google searches for Gucci and Louis Vuitton are ahead of Chanel, Prada and Burberry”. (Source)

This investment is not just into e-commerce technologies or SEO or SMM; it is also about actively monitoring what people say about brands and using feedback constructively to change product features or packaging or how they are sold etc. This shift from being centred around individual customers to focusing on entire communities is important, because it allows brands to reach out to, engage with and influence a large number of relevant prospects and customers.

What “digital” has done is to bring in a higher-than-before level of ease and convenience when it comes to shopping. Purchases can largely be made on an “anywhere, anytime, anybody” basis. But even in a digital world, brick-and-mortar stores exist. And even younger buyers go to stores to buy luxury products. It is therefore essential to provide buyers with a consistent omni-channel experience because, as Mr. Lunghi says, “in a digital world, customers expect a connected and coherent experience”. Jin K. Han, Ph. D., Professor of Marketing and Academic Director at Singapore Management University said, “For the luxury industry, e-commerce and digital engagement with the millennials represent a double-edged sword.  While the rising trend in online sales for luxury brands reflects the industry’s ability to better connect with the millennials (who are more tech-savvy than previous generations), much of this uptick is a shift in sales from physical stores to digital channel.  Moreover, with the increasing competition from off-price luxury digital channels—created by the luxury brand manufacturers themselves or third-party retailers, the full-price luxury is facing cannibalization dilemma.”

The strategies adopted by the luxury industry are just as relevant to others, provided they are adapted to their own contexts, but what will this mean for the future?

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