Rapid digital acceleration has challenged many industries to balance tradition with innovation. However, this tension is particularly acute for the luxury sector. A striking paradox exists between traditional luxury, which centers on exclusivity and scarcity versus modern luxury, which enables accessibility to all.
Can the two exist in harmony? Being able to positively blend both approaches requires brands to transform strategic and operational business models and revise value propositions to meet changing consumer preferences across channels. A careful balance between brand heritage and future-forward strategies needs to be achieved. This challenges companies to move quickly, seizing new digital opportunities while safeguarding the key foundational elements that built their brands.
Historically, luxury stocks have bounced back after a crisis, but as we continue to see in 2022, the 2020 pandemic-related recovery is uneven. For example, luxury cars are already exceeding 2019 levels, but we don’t expect personal luxury to recover fully by 2024. Examining personal luxury in more detail, we see a slightly slower recovery in the largest segments of designer apparel and leather goods and a slow recovery in workwear. This aligns with gradual increase in social interaction and the spotty return to physical corporate office environments.
The luxury market continues to both consolidate and expand. A few big names will keep getting bigger, bolstered by acquisitions. LVMH is a prime example. During the second quarter of 2021, LVMH accounted for 15 percent of the global luxury goods market, helped partly by the acquisition of Tiffany and Co.
At the same time, new brands, and importantly, new categories are emerging as consumers look for “luxury” in more areas of their life, such as pet care, fitness apparel, and wellness products, resulting in an expansion of the overall market. We believe this will continue to play out with the luxury ecosystem growing and the middle of the traditional market hollowing out as many brands struggling from the pandemic are acquired by conglomerates and private equity.
Some things will remain constant. Luxury buyers continue to care about the authentic origins of a brand and its products or services. The brand story remains critical to consumers as each luxury purchase is an emotional investment and not just a monetary one. Also, luxury shoppers expect more than a transaction--they expect a premium, exclusive experience.
Millennials and Generation Z are instrumental to this future growth. Gen Z is already estimated to account for 40 percent of the world's consumers; they have a global buying power of $150 billion and influence $600 billion of consumer spend. Their preferences are important to consider as they also impact older and younger generations—a phenomenon we call an “echo effect.”
Key factors involved in Gen Z’s decision-making include being socially conscious, tech savvy, active on social media and online, and are more wary of traditional credit.
More so than any other generation, Gen Z views identity as fluid and less representative of characteristics such as gender, race, physical size, and sexual orientation. These consumers want to see their identity acknowledged and reflected by brands.
Fashion and beauty brands have an opportunity to help consumers affirm their identity and build confidence. Traditional categories around gender and sizing may be limiting, and even alienating, to growing groups of people and should be carefully considered in segmentation, product offerings, and marketing.
The excerpt was taken from the KPMG Thought Leadership publication The luxury brand paradox.