The personal luxury goods market is changing geographically, demographically and creatively, requiring purveyors of posh to adapt to a new concept of luxury.
Boyden's perspectives on the news and trends that are transforming industries
Big luxury groups like LVMH, Hermès and Kering have built their fortunes on continuity. Generations of consumers have been drawn to timeless products from brands with long and noble lineages. Now, particularly in fashion, luxury houses are under pressure to adapt as a global industry with a market value of about $700 billion transforms. Courting consumers with different values may be necessary. But this new sheen of modernity could dull their allure in the eyes of super-rich core customers.
In the past decade, the luxury goods industry focused on China as it grew to become the second-largest market after the U.S. Recently it has cooled. Firms are now finding opportunities in the Middle East, Sub-Saharan Africa, India and Indonesia. Anita Balchandani of McKinsey points to a more profound shift, from thinking in terms of cities rather than countries. This year Gucci opened a shop in Austin, a hotspot for techies migrating from California. Louis Vuitton is selling menswear in the crypto hub of Miami. In China, luxury brands are scouting second-tier cities as larger ones remain under lockdown.
Another major change is that luxury goods consumers are getting younger, with Generation Z shoppers increasing their share of global spending from 8% to 17% between 2019 and 2021. More than half of all luxury goods purchases are made by Generation Z and Millennials. This share is expected to increase. And with this demographic shift comes a new mindset, as younger consumers have a different idea of what constitutes luxury. Selling points like craftsmanship and heritage do not carry the same weight.
The changing tastes of luxury goods consumers are having a major impact on the role of the creative director, the standard-bearer of the fashion house. While creative directors once prioritized their brand’s preservation, many are now younger, more adventurous “artistic visionaries with the freedom to redefine it”, according to The Economist.
This new generation of creative directors is redefining luxury at the elemental level. In terms of materials, fur is decidedly dead. Last year Kering announced it would stop using fur across all brands. “When it comes to animal welfare, our Group has always demonstrated its willingness to improve practices within its own supply chain and the luxury sector in general,” said CEO François-Henri Pinault. “The world has changed, along with our clients, and luxury naturally needs to adapt to that.” Vegan alternatives to fur and leather are gaining significant traction.
Luxury brands are taking steps to improve their environmental sustainability as well, motivated in no small part by the desire to appeal to younger consumers. Prada launched its recycled nylon as an alternative to petroleum-based nylon in 2019, the same year Chanel invested in a biotech company developing synthetic silk. Luxury brands are also diversifying their products to include casual gear like trainers and tracksuits, and offering smaller, more affordable items.
Thomas Chauvet of Citigroup points out the risks of changing in a change-averse industry. Returns on investments in markets like Lagos and Mumbai could take years to materialize. Younger consumers might view sustainability and cruelty-free claims with scepticism. Lower-cost offerings may be off-putting to the super-rich, who prize exclusivity. As one executive said, these products need to be “more precious, more sophisticated”, in order to sell fewer at higher prices. “That’s the equation of luxury.”