Fashion’s complex future: the new strategies of success
Luxury fashion power players have a lot to win - but only if they play their cards right.
This article was originally written by Demi Karanikolaou in Greek for Harper’s Bazaar Greece. You can find it here.
The journey of luxury
Long before Covid19, the luxury industry seemed to be getting more complex than ever before. The pandemic ended up massively affecting worldwide luxury sales, with some markets experiencing losses of up to 23%. However by 2021, the luxury personal goods market experienced a quick economic turnaround, growing by 29% to hit 283 billion euro. But there is a catch - this growth is coming from everything but traditional sources for the heritage European houses. China - luxury’s main market - might be facing potential future slowdowns. Most importantly however, the new complex generations, namely the Millennials (born 1981-1996) and Generation Z (1997–2012) are becoming the most valuable consumer segment, combined with unforeseen technological disruptions.
Characteristics of the Millennials & Gen Z
According to a new report from Klarna, Gen Z and Millennial (63%) luxury purchases have outpaced spending by Gen X and Baby Boomer shoppers in the past 12 months, with 100% of the recent luxury growth also being attributed to them. It is without a question then, that Bain & Company is predicting that Millennials and Gen Z will account for nearly half of the total luxury goods sales by 2025. Now dependent on those young generations, luxury brands are obligated to thoroughly understand their needs.
Having grown up in the age of the Internet, Millennials and Gen Zers are both digitally fluent, and used to an omnichannel experience that links physical with virtual life. Luxury goods have a special place in their hearts, having been deeply rooted in the pop culture they grew up in. While the two age groups are in many ways different, certain commonalities (such as the troubling historical events that took place in the last 20 years) have undeniably shaped the way that they consume and interact with luxury fashion. Indeed, thrown into uncertainty from an early age, young people experienced the 2008 fiscal crisis and its stagnant job market, the rise of the gig economy and climate change, the Covid19 pandemic and a myriad of radical technological disruptions. As a result, these younger generations have turned to conscious consumption, sensibility and vintage shopping. Heavily focused on values, they are seeking sustainability ethics from companies and a sense of belonging to ideological communities.
Being price conscious, these individuals appreciate flexible payment options (Klarna etc.), but the flexibility for them must continue in other aspects of the luxury shopping experience such as buy-online, pick-up-in-store. For them, the most important part of shopping however is a strong brand experience across all channels, covering the long consumer journey of today, as offline blends with social media, e-commerce, searching tools and of course, gaming. The latter in particular is of utmost importance in modern culture since more than 81% of Gen Zers can be found on online games for an average of 7 hours a week. In fact, 2.7 billion active gamers are currently building real relationships and spend real money on those platforms, bringing the total global gaming market to an estimated worth of 300 billion dollars, numbers that simply cannot be ignored.
A Complex Market: The West vs China.
And as if the new generations driving the future of luxury were not complex enough, vast differences between regions are added to the mix. With China being the new center of gravity for the luxury market, companies need a strong global strategy with a localized approach. This would imply their ability to not only excel in optimized local branding and marketing, but also in responding to local demand or traditions in a natural way. The complexity of the overall current luxury market however shows that, despite Chinese demand reigning supreme for now, the USA and Europe are still accounting for a significant percentage of luxury revenues. Exposed for hundreds of years to the culture of luxury and high expectations on one hand but simultaneously experiencing a world of diminishing opportunities on the other, the needs of western consumers are now more focused on more impactful attributes such as social belonging and online brand storytelling, instead of the old aristocratic approach of luxury spending. Proving this point, wealth in the USA is still primarily held by baby boomers instead of young generations.
The opposite is seen in the East. Being the first generation post China's economic growth, young Chinese consumers have grown up in relative affluence, being expected to achieve wealth. Labeled as the “moonlight generation” by the Chinese government, those young people are spending more than they earn in order to buy into the status and brand image that luxury brands are offering. For young Chinese consumers, a Rolex watch can signify belonging to a certain type of successful group - one that can open many doors inside and outside of the country. It is no question then why 80% of luxury spending in China is done by people younger than 40 years of age, even if the average Chinese luxury consumer is not as wealthy as a western counterpart. This unique prioritization of needs has caused China to account for more than 40% of the total global luxury demand.
Future strategies
So what does a future with such complexity look like? A new type of commerce is emerging, one powered through data and a 360 approach. This is necessary in a world where the majority of consumers bounce between online and offline to shop. Ambient (surrounding on all sides) retail is the data-driven, constantly on, integrated end result of a centralized search driven retail strategy, made possible through the powers of the internet of things (IoT) - with tens of billions of progressively instrumented, intelligent and sentient end-point devices reshaping the way we exist. Indeed, trying to exclusively rely on an online strategy can prove to be tricky, since customers often seek an offline luxury experience to complete the purchase in store after their online research. In China, for example, less than 20% of the final retail purchases are completed online. For that reason, retailers have to offer convincing reasons in order to get people in stores: Case in point Jacquemus adopted an instagrammable pop up store strategy in Paris, Milan and London. Each one of the stores had a specific monochrome aesthetic, making them a unique experience. But other types of commerce are also rising: direct to consumer and subscription business models are catering to those who are uber digitally native and appreciate a no-hustle, same day shipping experience, based on expert data collection and processing. Of course, a lot is also to be said for the metaverse. The cool online communities that millions of young people inhibit, can offer companies a chance to create new types of virtual or phygital (physical with a digital twin) products, opening an entirely new stream of business. Being very popular with the male population, Metaverses, Crypto and NFT can allow luxury companies to address new types of customers that differ from their traditional -female- consumer.
The future of luxury commerce seems to be carrying more complexity than ever. However, it is important to remember that despite the multitude of changes, the reasons why people buy luxury have remained the same throughout history. Appreciation for beauty, security and a sense of social belonging are motivating people and giving them the opportunity to dream. The companies that will manage to adapt, innovate and surpass customer expectations, all while building an elaborate dream factor around their brand have nothing to fear.
