To reflect the major trends of our time, while at the same time remaining faithful to a high-end market position, has become something of a tightrope walk for the luxury industry. To succeed, companies have spent years drawing on their vast financial resources in order to drive change. Between trends, strategic directions and new perspectives, the luxury sector is now on moving ground.
It’s a great example of a V curve. After a historic fall of 23% in 2020, the global luxury industry grew by nearly 15% in 2021, achieving estimated sales of €1.4 trillion. What’s more, sales of personal luxury goods (including ready-to-wear, leather goods, shoes, watches, jewellery, cosmetics and fragrances) – in other words, the sector’s core products – rose by nearly 30% last year, a record. Luxury giant LVMH saw its sales soar by 44% compared to 2020, and even rise 19% against the 2019 figure1. Consultants Bain & Company expect to see growth in the sector of between 6% and 8% a year from now until 20252.
Underlying trends lead to a larger audience
“Luxury is historically a growth industry,” highlights Claudia D’Arpizio, Global Head of Fashion & Luxury at Bain & Company and the lead author of its annual Bain/Altagamma Luxury Goods Worlwide Market Monitor. “But the main reason for this strong rebound in sales is the emergence of a new clientele.” As in many other sectors, the pandemic has accelerated a series of disruptions that were already underway.
One of the main growth drivers is China, whose share of the market has doubled in barely two years to reach €60 billion, representing more than 20% of the global total. While Americas accounts for 31% of consumption, everything now points to China becoming the epicentre of the luxury market in the years ahead. But this broadening of the audience is not limited to the Asia effect. “Another major change is the local geography,” Claudia D’Arpizio adds. “Until now, customers of luxury brands were concentrated in the major cities, but this is becoming less often the case, particularly as people move to smaller towns and cities. Brands are adapting to this by opening pop-up stores, and also by developing remote purchasing.” A significant amount of the growth witnessed in the United States, for example, is being driven by people in second-tier cities and suburban areas.
This expansion of the clientele is also linked to changes in the age of luxury consumers, with the younger generation, in particular, having a different relationship with the sector. Claudia D’Arpizio highlights an underlying trend that first surfaced in the 1990s and has continued to grow ever since. “In the past, luxury customers were almost exclusively adults with a career job. Now, there are four different generations active in the market, with not only young people (Millennials and Generation Z) being involved, but also their grandparents.”
A more sustainable and digital form of luxury; a new kind of customer experience
This broadening of the consumer base, and particularly its more youthful nature, is naturally having an impact on the brands. Their offerings need to change, and move towards products that can be worn on more than one type of occasion, such as casual shoes, sportswear, holiday wear, etc. What’s also changing is the reason for buying luxury products in the first place. “It’s less about showing your wealth, and more about showing your personality and benefiting from the brand image. Consumers are much more focused on the brands they choose and the values they represent. And brands are now realising they need to be more transparent about things. Even though their plans aren’t always mature, they are communicating about their commitments and setting out their strategies for sustainability (raw materials, CO2 reductions, etc.)”, continues Claudia D’Arpizio.
The sustainability aspect is particularly evident in the United States and Europe, where it embraces a range of different causes, led by animal welfare and respect for the environment. A number of brands have successfully taken this approach. A pioneer in the field, Stella McCartney was already positioning her House as being ethical and sustainable in the early 2010s, notably with plant-based faux-leather bags made from the underground root systems of mushrooms. They have since proved to be a major asset for the brand.
Similarly, luxury players are no longer hesitating to invest in one area that would previously have been considered contrary to its high-end values: second-hand goods. In 2020, following the lead of Stella McCartney (yet again), Gucci and Burberry, for example, turned to TheRealReal, a marketplace that has been democratising luxury products for the past 10 years3. In September 2021, Gucci launched Gucci Vault, an online concept store offering second-hand pieces that have been restored and refurbished. Further examples have been the decisions by the major Paris department stores, Printemps and Galeries Lafayette, to devote several hundred square metres of floorspace to circular fashion. The second-hand luxury market reached €33 billion in 2021, an increase of 65% since 2017 – compared to 12% growth of brand new luxury goods over the same period4.
Another growth driver in the luxury market is online sales. Having enjoyed a 50% rise between 2019 and 2020, they increased by 27% between 2020 and 2021 to €62 billion. This activity had also long been viewed with scepticism by the industry. However, a combination of the pandemic and the younger age profile of the clientele has certainly changed perceptions. In a time of social distancing, brands identified the extent to which digital tech could become an ideal channel for building relationships with their clients – given that more than 85% of luxury purchases in 2021 have been influenced online and 50+% have been enabled by digital5. The digital evolution will not stop: online is expected to continue on it growing path going forward, representing up to 30% of total luxury purchase by 2025, also thanks to a virtuous omnichannel circle (direct e-commerce, indirect online distribution and physical stores)6.
As they seek to offer unique experiences to clients, luxury players are also positioning themselves for a more virtual future. Virtual Gucci bags are already available on Roblox, Balenciaga is on Fortnite, and video games are featuring Louis Vuitton NFTs… the leading Houses are becoming pioneers in today’s two biggest tech trends: the metaverse and NFTs. Consultants at Morgan Stanley estimate that an extra $50 billion in sales could be generated by NFTs and video games for the fashion and luxury markets by 20306.
At the crossroads of the twin challenges of sustainability and technological innovation, the potential for blockchain technology is also being taken seriously. In a unique event in the luxury industry, corporate giants LVMH, Prada and Cartier came together in 2021 to create the Aura Blockchain project. The aim of the platform is to guarantee the authenticity and traceability of real products throughout their lifecycles. In short, technology is providing a way of responding to what could be a major expectation among consumers of tomorrow’s luxury: to have the guarantee of a sustainable, premium quality experience.
6. Bain & Company Luxury Goods Worlwide Market Monitor 2021