The global luxury market has advanced at a fast rate in the past one year due to the pandemic and its rippling effects on all businesses. But will the luxury industry continue with this accelerated rate of progression? Will the consumer continue to embrace new rules, or will it demand to go back to ‘normal’?
China & US markets look optimistic while Japan & Singapore remain more conservative. Europe is being more conscious about spending. Beauty, alcohol, fashion, private banking, and wealth management sectors are promising.
Abhay Gupta, Founder and CEO of Luxury Connect, hosted and moderated an insightful discussion with some stalwarts of the luxury industry, to delve deep into some questions. Mr. Armando Branchini, Honorary Director, Founder of Altagamma; Dr. Daniel Langer, CEO, Équité; Mr. Manoj Adlakha, SVP & CEO, American Express BankingCorp. India; Ms. Federica Levato, Partner at Bain & Co.; and Ms. Amrita Banta, Managing Director, Agility Research, Singapore connected digitally to exchange viewpoints. We summarise some important takeaways from this conference.
Economic Rebound 2021
The latest “Bain & Company – Altagamma Spring 2021” report cited a great rebound in luxury industry in 2021. The Latin Market Q1 2021 went back to Q1 2019. The post-pandemic recovery has cemented the fact that Gen Z is the driver of the luxury industry, specifically in Asia and US. Online channel has moved from 12% in 2019 to 23% in 2021 market cap, as there was significant digital adoption both by brands and consumers. While there has been a shrink in consumptions across geographies, the rise of luxury consumption within China has increased significantly as compared to 2019. The biggest competitors in the market, such as LVMH & Richemont, are collaborating to drive synergy.
Keeping these metrics in light, Mr. Branchini expressed his optimism: “In 1983, there were 8.3 million luxury consumers generating 30 million euros of revenue, while in 2019 the number grew to a whopping 450 million luxury consumers contributing to 125 billion euros of revenue. The exponential growth of the industry is a great indicator of how time and again the industry has proven to overcome all crises, and will continue to do so.”
Moreover, according to Ms. Banta, China & US markets look optimistic while Japan & Singapore remain more conservative. Europe is being more conscious about spending. Beauty, alcohol, fashion, private banking, and wealth management sectors are promising. However, more and more localized strategies will be employed by different countries, as each country is reacting to COVID in different ways.
"Brands have their own life; brands have to be relevant and have to be in a position of providing cool propositions and products."
New Challenges
Despite positive rebounds, brands which did not do well during Covid should not expect a rebound. Brands have been suffering from homemade issues as they did not make a strong connection with their customer base. Some of them played more on pricing and promotions rather than on exciting the consumers. The next generation consumers expect more from brands. They are not only digitally immersed, but also have higher consumer expectations.
“Brands have their own life; brands have to be relevant and have to be in a position of providing cool propositions and products. Being cool means each brand has to engage and relate with consumers to be in their share of mind. The real challenge is being able to keep the existing ones and attract the new ones. The turnover has been growing, consumers are growing, differentiation is becoming even more important while the dynamics of economy and strategies are also constantly shifting,” expressed Mr. Branchini.
Dr. Langer points out that decades ago the delta between luxury and non-luxury was very high, but today the delta has reduced significantly. Product differentiation is blurring, but in the digital world it becomes even more important to be different. The store front of the past is the social media of today; people can launch a brand without a physical store.
When Bottega Veneta shut down their social media, it created a new conversation on brand relevance. According to Ms. Banta, social media presence will be increasingly dictated by a brand’s personality where brand identity is the key.
Digital Winners
Mr. Langer pointed out that the top performing brands today have been able to excite and connect with customers digitally. The panelists discussed about whether the meta-verse, the intangible aspect of luxury, will be just a fad or something permanent. According to Ms. Levato, “the technology and digital integration is an inevitable part of evolution of the luxury brands.”
"The key is to connect emotionally with customers. Digital connection does not mean being detached from emotions."
Digital fashion is going to be increasingly important, where the virtual world is expected to be worth $400 billion by 2025. The intangibles of the digital world are being taken over by the tangibles of luxury world. Case in point? A digital Gucci bag sold for $4,200 as compared to a physical bag that is usually sold for $3,600.
Ms. Levato expands: “The digital revolution will not stop, it will continue on evolving. But how it will apply to the industry will depend on the change in the degree of virtual reality that we live in, which varies brand by brand. There are brands which are more digitally inclined or ahead in digital game as compared to others. The key is to connect emotionally with customers. Digital connection does not mean being detached from emotions. During pandemic, different brands authentically, genuinely and truly connected with consumers. Developing genuine emotions and relationships with a brand, even if we stayed at home, and even if we used to mobile or computer, is possible. The underline trend is clear: brands and customers will connect digitally going forward.”
"Digital Art is a new category which next generation is more familiar with, who are also investors in digital art."
Shift In Consumer Trends
Mr. Adlakha, however, gave a unique point of view on how luxury brands are becoming more customer centric. Pandemic has made people crave for connections, with a heightened social conscientiousness and a inclination towards silent luxury that pays attention to classical elements such as heritage and craftsmanship. Concierge Services by American Express observed a steep increase in demand in luxury travel and luxury bag 24hr express delivery.
As per Ms. Banta, the South Asian millennial is aspiring, ambitious and affluent (AAA), and is showing inclination towards investing in luxury. Especially, Indians traveling abroad or studying abroad are the first one who are exposed to global luxury brands such as Tiffany and Cartier, and are splurging.
Disrupters in Luxury
Sneakers, backpacks were not luxury categories till a decade ago. But now are one of the highest growing segments in luxury fashion. As per Mr. Langer, “New categories bring creativity and differentiation, when there is differentiation, it brings more value creation. Digital Art is a new category which next generation is more familiar with, who are also investors in digital art. We have to keep in mind where we have to create something very special that is of extreme value to its customers.”
The e-commerce sector is going to be even more crowded and more competitive in the future, in a race to provide better engagement services to customers. There has been a speculation around Amazon entering luxury industry. Ms. Banta pointed out that Alibaba’s Tmall Luxury Pavilion is a great case study that proves that once you have the logistics and the muscle to reach to consumers, everything is possible. In India, companies like Tata Cliq, which sells 300 premium brands, is already providing bespoke luxury services such as access to exclusive invite only luxury events to its privilege members.
Sustainability
In addition, the Gen Z are investing in second hand luxury, ‘Buy Now Pay Later’ policy and reusable luxury, which will contribute to 10% of the revenue by 2030.
Sustainable investments have globally increased. Young HNIs are going for sustainable investing where the returns may not be as high, but people are finally ready to pay premium for sustainable brands, even in Asia and Europe. The hospitality Industry is embracing sustainable processes and materials.
In addition, the Gen Z are investing in second hand luxury, ‘Buy Now Pay Later’ policy and reusable luxury, which will contribute to 10% of the revenue by 2030. Brands have recognized that these are additional ways to attract new consumers or attract old consumers by creating new shopping occasions. More and more, brands are trying to overcome third-party involvement by taking control over the second hand market, which is a breakthrough in the industry.
The discussion concluded at a very positive note: The luxury sector will continue to grow bigger, China will become even more important, entry of new luxury brands will continue while strong brands will become stronger. The industry is embarking into an exciting journey with multiple possibilities.
To see the full video of the panel discussion, click here.
