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Luxury’s Future: From Strong to Stronger in 2023?

A quick rebound of the luxury industry post-pandemic, and Bernard Arnault’s ascent to the pedestal of the world’s richest man, have shown that luxury is strong. Going forward, here’s what the luxury industry needs to work on to keep it resilient.

Over the past decade (2010-2019), the luxury goods sector expanded at a healthy rate of approximately two times the global GDP growth. Starting on a victorious note in a world just emerging from the subprime crisis, the decade ended with the historic onset of the Covid 19. A year of rude awakening for global luxury, 2020 saw a first ever negative growth in several decades. As per Bain & Co, the growth trajectory of personal luxury goods averaging at a CAGR of +6% through 1996-2019, was reversed to a -23% during the 2019-2020 period. 

Luxury fashion
 
Emergence of innovative technologies, drastic consumer trend changes and a re-definition of true luxury forced Luxury brands to adopt and service mankind selflessly. The sector remained resilient through the various waves of the pandemic to emerge victorious and glorified. In fact, the years 2021 and 2022 once again proved that the luxury sector has always been the last to enter but first to recover from any kind of economic or geo-political crisis. 
 
The past year, in particular, has been anything but ordinary. The unnerving combination of war, inflation, energy scarcity, and climate change wasn’t what anyone expected as life was just beginning to move forward from the COVID-19 pandemic. Despite all this, 2022 has also proven to be a year of resilience. In fact, 2022 has been a very spectacular year for global luxury. Not only were the 2019 levels reached, but crossed over. Ninety-five per cent of luxury brands generated positive growth. The global luxury market is set to grow by 21% to reach a size of Euro 1.4 trillion – revenge shopping with a vengeance!

In retrospect, although the luxury industries have promptly recovered from COVID, going forward, they face significant headwinds: growing geopolitical risks; over-dependence on a few markets; rising fears of impending global economic slowdown; supply chain disruptions; relentless digital disruption – the latest being the metaverse; increasing pressures to transform for purpose and sustainability; and younger consumers expecting different approaches and showing different buying habits. 

Going forward, what can the world of luxury expect 2023 onwards? Which carry-over new trends and long-term changes can be expected?

1. Outlook 2023: Weakness at the Bottom, Strength at the Top

As per the millionaire survey by CNBC, going forward, 80% of the US millionaires plan to cut back luxury spending due to impending recessions. However, Milton Pedraza of Luxury Institute explains how the luxury consumption phenomenon operates. “In a luxury brand, the top 5% of customers provide 40% of the sales. The next 15% of customers deliver the next 30% of sales. That’s the top 20%, who are true HNW and UHNW individuals, not mere millionaires. In total, they deliver a full 70% of sales. We are in continuous contact with our vast global network of HNW and UHNW individuals, and they tell us they will continue to spend despite some obvious investment losses. In contrast, the bottom 80% of customers who deliver 30% of the sales are always susceptible to the economic downdrafts. Those 80% have limited resources, their stock portfolios are down, and many are at risk in a white collar recession that we have also predicted since January 2022. So yes, batten down the hatches for 2023, establish an honest dialogue to understand the needs of your best customers, dramatically enhance the client experience, and train your transactional people to raise their emotional intelligence skills and start building high performance client relationships. HNW and UHNW Client retention and referrals will drive performance in 2023 that you need to execute now.”

Being exclusive, being something out of the ordinary, being more environmentally friendly, being socially conscious, being inclusive, top quality of service and product and being empathetic are values being sought for.

2. New Markets of Luxury

As per Bain & Co., the US luxury market is still strong. Europe has managed to recover beyond the 2019 levels, thanks to solid local demand alongside an extra-boost from US and Middle Eastern tourist shoppers. However, the new markets of luxury consumption are surprising the industry. South-east Asia and Korea are winning in terms of growth and potential. India and emerging Southeast Asian and African countries have significant potential as well. Among the rising stars, India stands out for growth potential, which could see its luxury market expand to 3.5 times today’s size by 2030, propelled by an increasing interest and evolving attitudes and behaviors among (young) customers towards luxury goods.

3. Luxury has a New Meaning

Current millionaires are mainly concentrated in the 18-44 age bracket, which includes a mixed cohort of millennials and a rising population of the Gen Z. Luxury takes a new meaning for this cohort. From simply being more of a brand-led status symbol, luxury today is more health besides just wealth. Luxury is freedom, luxury is being able to do what one wants to do, to step out, to be able to travel, be with friends, and be creative without being judged. Being exclusive, being something out of the ordinary, being more environmentally friendly, being socially conscious, being inclusive, top quality of service and product and being empathetic are values being sought for.

4. Resale, Rental is a Raging & Resonating Force 

Balenciaga shoes

By all accounts, resale is growing faster than first-hand goods. As mainstream consumers have become more comfortable with second-hand fashion, and the stigma around resale has started to shift into aspiration, many brands and retailers have launched integrated resale platforms, from Isabel Marant and Balenciaga to Selfridges and Net-a-Porter. Rolex too recently launched its own pre-owned collections. Statistics reveal that an impressive three-fourths of consumers of all ages and across the socioeconomic spectrum participate in the secondhand market. 
 
As per the 2022 Thredup Resale Report, the sector is expected to grow a further 127% by 2026. Bain reports that the $32 billion pre-loved personal luxury market grew five times faster than the primary market from 2017 to 2021, up 65% as compared to 12% for first-hand personal luxury. The second-hand furniture market too is predicted by Statista to more than double from $13.4 billion in 2022 to $27 billion by 2026. 
 
Within the APAC region, the concept of sustainability and secondhand is still growing compared to North America or Europe with Australia being the most closely related to its western counterparts. The idea is to build loyalty among sustainability-minded consumers, offer lower-priced options for new customer acquisition, and continue profiting from products long after they leave the shopfloor. 
 
In a similarly green vein, many people are opting to rent items rather than buy them, particularly in categories such as fashion and jewelry. Sustainability and tapping into the circular economy is at the heart of this growth. Although only 10% are interested in renting clothes, it indicates that this growth might continue to be gradual. Meanwhile, 18% say that they are interested in buying second-hand clothes, though this figure lags quite far behind in Asia where only 9% are interested. The online clothes rental market size will significantly grow between 2021 and 2031. The market is projected to be around US$ 1.8 billion in 2021. There's a projection that 10% of revenues by 2030 is going to come from concepts such as rent a luxury, buy now, pay later and reusable luxury.

5. Accessible Luxury is under Threat 

As a resulting combination of all above trends, the brunt is being borne by the democratized lines of luxury. Even fast fashion has been impacted with slowing demands. In this world of instant fame and recognition, no one wants to be seen in the same ensemble ever again. Besides, if one can either rent or buy a second-hand version of a higher placed luxury item, why would anyone buy either fast fashion or even accessible luxury? In the recent past, names like Zara have been raising their premiumisation index by introducing higher priced lines whilst luxury brands have been focusing more on the sophisticated higher versions of their collections.

6. Guilded Luxury – Rarity Reset

Key to gilded luxury is not the usual ‘by invitation’ offerings but enhanced exclusivity via tiered level of access offering a multitude of benefits for the highest spenders.

Thanks to the post-covid K shaped recovery in most countries, the lower end of luxury created specially for the aspirational class is facing a challenge. The true luxury consumer is however moving to a much higher plane of personalisation and experiences. As the world enters a new era of global political and economic uncertainty, luxury brands are turning their attention away from the aspirational client and renewing their focus on their VIC (very important client). 

VICs are the core consumers – those who are not impacted by any kind of economic or political turmoil. The cost of living crisis due to rising inflation does not affect their luxury spendings. Brands like Chanel have built exclusive and prestigious experiences for these business critical revenue drivers who spend top dollars with them. Understandably, luxury brands are building deeper and meaningful relations with their VICs which can assist in weathering the economic storm. Key to gilded luxury is not the usual ‘by invitation’ offerings but enhanced exclusivity via tiered level of access offering a multitude of benefits for the highest spenders. Services such as online one-on-one livestream consultations, offline value-added experiences, and even catering meals for VICs during lockdowns helped with keeping VICs hooked.

7. Cultural, Social, Ethical & Moral Orientation 

Luxury brands learnt the importance of localised cultural, social and moral values the hard way. Not long ago, Dolce & Gabbana faced a massive backlash against their humor oriented campaign depicting a Chinese model trying to eat a pizza with chopsticks. The follow up apology rendered was further considered insensitive and ingenuine. The impact on the subsequent sales and brand equity worldwide was a warning for all luxury brands.

The recent campaign by Balenciaga is another pointer in the same direction. The unprecedented backlash against the campaign as well as the brand resulted in not only the consumers but even celebrities and brand ambassadors like Kim Kardashian parting ways with the brand.

Going forward, luxury brands will need to respect and be sensitive towards matters of cultural, social and moral values. This shift to value-based consumers can be daunting for brands with outdated business models, or having a bad reputation. Ethics, sustainability and transparency move into the design room from being just another marketing buzzword.

8. Diversity, Inclusivity and Heightened Relevance of ESG 

Diversity in luxury

With more and more awareness of ethical standards, employee well-being, gender equality, diversity and inclusivity, brands can no longer be simply profit-oriented. Most designer-led brands are now being run by corporates and investment houses, and the governance model towards environmental and social practices plays a key role. Indian-born Leela Nair being appointed as the global CEO of Chanel is the latest addition in this direction.

Black Lives Matter is another strong peg in the thrust for inclusivity. Louis Vuitton’s sensitive tributes to the passing of its menswear designer Virgil Abloh showcase luxury’s response towards the community. LGBTQI+ is not taboo any more since mutual respect has set in. 

Co-existence is the new defining undercurrent. Going forward, most luxury brands will have a focus on such matters with a chief diversity officer playing a key role in the brand governance models.

9. Purpose precedes the brand

We all emerged from the pandemic craving more purpose, more meaning and more connection. Shifts in the market have accelerated resulting in luxury brands transforming from makers of products to purpose-driven actors in a push for a more sustainable, diverse and equal society. As the world emerges from the pandemic, a permanent shift towards “purpose” and “brand values” remain central to purchase decisions. The purpose of the brand, its contribution towards mankind and social issues, inclusivity, environment and nature play center stage. However, going forward, a brand that operates with heightened value and transparency, sincerity and commitment is most likely to be rewarded with lasting customer loyalty and trust. “Where once it was all about status, logos and exclusivity, luxury brands are now actors in social conversations, driven by a renewed sense of purpose and responsibility,” says Claudia D’Arpizio, partner at Bain & Company. The age of the enlightened consumer is surely here and now.

10. Tech-tonic shifts

Despite the worldwide economic slump, the global luxury market is estimated to be worth more than $2 trillion. Technology is reshaping the global luxury. Virtual selling is real selling. During and after the pandemic, luxury brands have acknowledged the need for being digitally present. A whole lot of tech adaptation was necessitated. From just 10–15% of overall sales being online, it is expected that by 2025, at least 25% of global luxury sales will be online.

As consumers become wealthier, they have a greater desire for uniqueness and exclusivity. Statistics are a confirmation to the fact that luxury sales adopted newer means, platforms and technology at a highly accelerated pace. One would believe that the pandemic was a dress rehearsal for a new, more technologically turbulent world. Simple ecommerce has reshaped into more immersive experiences.

While the online commerce space exploded during the pandemic, luxury resorted to a hybrid approach. Brands will have to consider creating smooth and easily navigable integrated omni channel experiences. Companies will need to continue to blur the lines between physical, virtual and hybrid products and experiences in order to find the mix needed as many workers are WFH, the young generations are nearly all virtual, and digital penetrates every aspect of our lives. However, the physical evidence cannot be discarded as a whole, since the human touch in luxury remains undaunted. Whether in-store or remotely, these interactions will play a critical part in maintaining customer loyalty. Brands that prioritize this hybrid approach to bricks-and-mortar and online will be set for success in the year ahead.

11. Metaverse & NFT mindset 

Prada NFT

The Timecapsule NFT Collection by Prada.


By 2030, the metaverse is anticipated to be valued at $13 trillion, with luxury and retail accounting for $50 billion. As per the ‘GCC State of Metaverse, and its potential for Luxury Retail’ report, published by Chalhoub Group, 87% of luxury buyers expect their favorite brands to be present in the metaverse, whilst 89% are eager to preview products in the virtual worlds. The report anticipates a project-based test & learn approach in short to midterm (2025), while new Web3 and Metaverse technologies are expected to be integrated into daily business in the long run. Metaverse is called to transform the luxury industry by presenting new consumer touchpoints, boosting a unique digital presence, and shaping the industry landscape.

At the vanguard, digital assets in the form of virtual fashion and non-fungible tokens (NFTs) are offering new ways for consumers to shop, exchange goods and inhabit those identities. By experimenting with NFTs, gaming and virtual fashion, brands will continue to unlock value streams in the metaverse that engage young consumers and will find new routes to creativity, communities and commerce. 

From Prada to Louboutin to Tiffany, 2022 saw some of the best luxury NFTs burst onto the Web3 scene. The start of 2022 witnessed the industry slowly warming up to the idea of non-fungible tokens. But many consumers remained cynical, branding labels’ Web3 efforts as PR marketing stunts with unclear or short-term values. Now, as the year draws to a close, luxury’s biggest players are officially embracing the virtual assets with open arms. 2023 is gearing up to be a time of widespread recognition for Web3, with non-fungibles playing a crucial part in that success.

12. Digital Natives to Metaverse Natives

While the last decade was all about digital natives or Gen Y, the current decade seems to be shaped by Metaverse natives. The average age of the oldest Gen Z is around 25 years or so and is stepping into the luxury consumption cycle rapidly. While the digital native enters his early middle age (average age 40+ years), there is no doubt that they helped shape the behavior of Gen Z to a large extent. As an elder sibling in the same household to also being a boss to a few, the influence is stark as well as the difference in approach. Gen Alpha is not too far behind as a true metaverse native.

It is estimated that by 2025, nearly 50% of the overall luxury market will consist of Gen Y and Gen Z buyers. As per Bain & Co, driven by a more precocious attitude towards luxury, ‘Gen Y’ and ‘Gen Z’ led the growth in 2022. Gen Z consumers started to buy luxury some 3 to 5 years earlier than Millennials (at 15 years-old, versus at 18-20). Gen Alpha is also expected to behave in a similar way. However, spending by Gen Z and Gen Alpha’ is set to grow some three times faster than for other generations until 2030, by which time they will make up a third of the market.

More and more of the younger consumers today survive at the cross-section of gaming, e-commerce and social media. Hence, now that the Web is evolving towards Web 4.0 era, which is more immersive, experiential and decentralized, luxury is taking a lead. As consumers spend more time online and the hype around the metaverse continues to cascade into virtual goods, fashion leaders will unlock new ways of engaging with high-value younger cohorts. To capture untapped value streams, players would explore the potential of non-fungible tokens, gaming and virtual fashion — all of which offer fresh routes to creativity, community-building and commerce. Digital environments are transforming from linear and transaction-focused spaces into multi-dimensional, experiential and collaborative virtual worlds. 

Gen Z has retained a childlike imagination and fused it with their own reality in the metaverse. Their experience in the real and virtual worlds is becoming seamless. Online shopping and in-store shopping are basically the same in the metaverse. In fact, Gen Z shops in virtual worlds and purchases virtual merchandise. And with NFTs, you can buy a physical object, as well as its NFT twin. All key brands like Louis Vuitton, Adidas, Gucci are highly active in the metaverse and NFT space. In fact, the first ever Metaverse fashion week was conducted last March with the next one already announced for March 2023.

Balenciaga and Nike are now making real money in the metaverse. Oliver Wright, managing director for consumer goods and services at Accenture, says most CPG brands are now looking at ways to be engaged in the metaverse and trying to figure out what percentage of revenues will come from digitally-related products and services. While products for the metaverse have costs associated with design, the margins for selling digital products are much higher because they have lower associated manufacturing or distribution costs.

To summarize, the metaverse is not just a marketing or branding opportunity, but something that will have real meaning to a company’s ROI and P&L statement and to Gen Z customers who live in the meta ecosystem.

AI, IOT, VR, AR, blockchain, 3D printing and mobile commerce – these terms have become a crucial part of the fashion and luxury industry currently experiencing significant transformations. A 3D avatar is becoming a reality where a customer could create his or her own avatar and dress him with clothes he could like. These 3D avatars can enter the favored games developed by luxury brands such as Ralph Lauren, Gucci and others. A virtual trial room can assist in choosing the perfect fit, basis your 3D avatar. 

By 2030 digital will play a much bigger role. Brands would have to win the digital game by content differentiation and by being relevant through brand content. It’s all about a unique experience, attitude and understanding of the customer which the luxury industry has been building for decades. Nevertheless, these new tools are developing and trying to transform the impossible to understandable, acceptable and incredible. Surely, the future of luxury is inseparable from technological innovations. This bond no doubt has immense potential. 

13.  Virtual influencers are the new vogue

Lil Miquela

Virtual influencer Lil' Miquela.


Virtual influencers represent a new world of opportunity for brands in terms of interactive and innovative collaborations. A ‘virtual influencer’ can be defined as a computer-generated, fictional individual which is most often used for marketing purposes, especially social media-based strategies. They can range from independently created avatars to official brand personalities, representing a company in various aspects of the digital world. Famous iterations of the trend include Gen Z-targeted social media influencer Lil Miquela, who boasts 2.9 million Instagram followers, and Brazil’s Lu do Magalu, who counts a staggering 6.1 million followers. Both these virtual people have worked with a variety of brands, namely Prada and Dior, however, their distinct dissimilarity to the typical influencer is that they are created by advanced tech companies. Going forward, this is a trend that the fashion and luxury companies need to be on a serious look out for.

14. Luxury Tourism

Travel continues to bounce back after being hit by the pandemic. Sustainable/ethical travel will be at the heart of this recovery. A majority of luxury travelers are likely to prioritize responsible travel in the future. Once again, the top of the list for purchasing penetration is travel and tourism. With many affluent having slashed their holiday spends during 2020 & 2021, travel once again tops the chart of beneficiaries. Glamping, undiscovered locales, money-can’t-buy experiences and adventures and family breaks will continue to be among the most resilient holiday types, reflecting the desire for many travelers to remain close to family and distanced from crowds and strangers. Multi-generational trips in particular are now proving to be highly popular with the affluent. Wellness holidays/retreats are also likely to continue seeing an uptick as wealthy individuals look to improve their physical and mental health after the stresses of the past two years. It is important for brands to continue delivering user-friendly websites, particularly for smaller screens, as the popularity of online shopping should remain buoyant in the coming years.


Abhay GuptaAbhay Gupta, a certified Marshall Goldsmith coach, is the founder, promoter and CEO of Luxury Connect (a boutique consulting organization) and Luxury Connect Business School (LCBS). Author of The Incredible Indian Luxury Bazaar, he has helped establish luxury brands like Versace, Versace Home, Versace Collection, Corneliani, Arredo Classic, etc in India. Luxury publication Blackbook recognizes him as one of the ‘Top 100 Indian Luxury’s Most Influential’. He is also a recipient of the ‘Luxury Retail Icon 2012’ title by Asia Retail Congress. Having being featured in Forbes Luxury Trend Report 2012 as one of the industry leaders, he has also been widely recognized as a luxury expert by many media organisations. Fondazione Altagama has also recognized his contribution to the growth of Italian luxury industry by his pioneering efforts in India.

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