Luxury is recovering, China and US are key, Europe stays cautious
The global luxury market is gradually recovering and should return to pre-pandemic levels by next year, a new report shows.
Boston Consulting Group and the Altagamma Foundation’s The True-Luxury Global Consumer Insight Report said the future looks bright for the sector. That’s even though only the upper end of the luxury consumer pyramid saw an increase in consumption during the pandemic.
BCG surveyed 12,000 luxury consumers and found that “US consumers are back”, but the luxury market is still very far from a business-as-usual situation. That’s partly because Chinese consumers are continuing to repatriate their spending, “which could pose strong implications for luxury brands in the future”.
Much of the spending growth is being driven by younger consumers in the Millennial and Gen Z age groups with these consumers set to account for 60% of the luxury segment’s total by 2025.
In 2020, only the two highest luxury spender clusters grew and the ‘Aspirational’ segment (which was 90% in terms of population and 62% in terms of value, pre-Covid) suffered the most. It fell to a 55% market share while the ‘True-Luxury' category’s share increased from 30% to 40%. That growth was driven by the most affluent consumers, with value growth of around 17% and an increase in their overall share from 6% to 12%.
That's perhaps understandable as consumers with the most personal wealth didn’t have the worries about jobs and future finances experienced by those lower down the affluence scale.
But while the pandemic isn't over, it's clearly receding in many markets and the report said that there’s a rebound effect happening with a desire for luxury increasing in the post-Covid world. The spending expectations of high-end consumers are generally positive and, as mentioned, younger consumers “are looking to the future with optimism”.
Interestingly, consumers in the US and China are most upbeat, but Europeans remain “cautious about domestic spending and [are] more pessimistic about foreign spending for the next 12 months”.
CHANGE IS HAPPENING
As mentioned earlier, the post-pandemic luxury segment will see some differences from the pre-Covid world. Apart from Chinese consumers spending more of their money in their own country, their tastes seem to be diverging from those of Western consumers.
It's interesting that European and US luxury shoppers expressed the intention to shift to a more sober style, but Chinese respondents “substantially confirmed the intention to continue in the same direction as before the emergency.”
And with the rise of live-stream shopping and more consumers and luxe labels shifting online during the pandemic, digital is now key. In the US, in particular, the market potential of live-streaming has been estimated to reach $25 billion by 2023.
There’s an increasing trend towards luxury virtualisation too. BCG said gaming is one key area and among the 39% of consumers who are aware of virtual online games that involve a luxury brand, 55% of them said they’ve bought in-game items. Importantly too, 86% of those people said they’ve then purchased the corresponding physical version.
And the “reset of the distribution ecosystem towards seamless omni[channel] experiences” continues. Last year, while 46% of true luxury consumers concluded their purchases in-store, 30% of them had researched them online beforehand.
But the importance of the “human touch” is still there. The report said “a personalised touch remains key for consumers when reached across all digital and physical avenues by a brand, confirming the need for brands to create a more 1-1 relationship with the customer across all touchpoints”.
Yet labels also need to think deep and hard about brand purpose and responsibility. Sustainability issues are “increasingly being taken into account by consumers in their purchasing decisions, with more than six out of 10 respondents highlighting their influence over decision-making.” That rises to seven in 10 for Millennials and Gen Z.
Finally, there’s the impact of new business models, such as secondhand and rental to take into account. The report coming on the day that Kering announced an investment in handbag rental business Cocoon, meant the importance of the trend is very clear.
BCG said consumers are increasingly embracing the possibility of renting luxury items, with as many as 18% of consumers on average testing this possibility over the last year (+13% vs the previous year). More and more consumers are selling their pre-owned luxury items too, especially among the young, and 44% of Gen Z and 37% of Millennials have done this in the past year compared to 26% for older age groups.
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