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As the global luxury market begins bouncing back to its pre-pandemic growth trajectory, luxury brands continue to experiment with new ways to fuel this growth. But with a new generation of customers embracing high-end brands, how will the luxury industry adapt?
In 2020, while the global economy shrank 3 per cent, the global sales of luxury goods dropped 14 per cent from pre-pandemic figures. The turnaround in the last 12 months, however, gives brands plenty to be optimistic about the coming year. With the sales of personal luxury goods closing at US$349 billion in 2022—an approximately 15 per cent increase from last year—the entire luxury industry is now worth about US$1.45 trillion, experiencing a V-shaped recovery post-pandemic. In this article, we discuss some of the key areas of opportunity within the industry, the trends within those segments as well as the factors driving the overall luxury industry growth.
The Rise of Experiential Luxury
Benefiting from the lifting of travel restrictions and the “revenge” travelling and spending of customers, experiential luxury has come out as the sector’s fastest growing category in 2022, a trend that is expected to carry over into the next year. Knowing that people are hungry for luxurious experiences right now, this is an opportunity for vendors, such as hotels and resorts, travel agencies and fine dining establishments, to add value and make sure they meet the demands of modern consumers, including eco-consciousness, exclusivity and one-of-a-kind treatments.
One of the signs that experiential luxury will be big from here on out is the forward movements of global operators such as the ultra-luxury Discover Collection and A2A Safaris, who promise their luxury clients rare travel experiences. Based in New York, Hong Kong, Singapore and Manila, with smaller forms of representation in other areas of the world, A2A Safaris, or Asia to Africa Safaris, has decided to expand to Bangkok in 2023. The luxury travel agency cites great potential among the affluent Thai market for bespoke itineraries to more exclusive travel destinations, such as the Arctic and Africa. Meanwhile, Discover Collection, which services the getaway needs of the world’s highest net worths, is adding more properties, such as Phang-Nga in Thailand, Mexico and Bhutan, to its portfolio worldwide, which already includes India and Kenya.
These are just two of a number of experiential luxury vendors, including global hotel and resort chains, eyeing the potential of destinations in Asia—particularly South and Southeast Asia—Africa, and South and Central America to the affluent market. The popularity of these destinations is largely driven by strong desire among luxury travellers for holistic wellness, sustainability, adventure and access to pristine nature, which have arisen since the pandemic.
Personal Luxury Goods
Material luxury goods, too, are benefitting from revenge spending, with all categories now recovered to 2019 levels or surpassing them and designer apparel and leather goods leading the resurgence. Luxury apparel products have experienced such a healthy growth due to younger consumers perceiving them as increasingly aspirational, with brands like Louis Vuitton and Balenciaga appealing heavily to Gen Z and millennial shoppers.
There is a caveat, however, with revenge spending for luxury goods. Years of economic stress will have only made heritage labels like Chanel, Dior, Gucci and Louis Vuitton—which can also afford huge marketing budgets—more popular to customers who continue to buy luxury, over mid-tier luxury brands or up-and-coming labels. Taking it even one step further, the customers of these well-established luxury brands may be honing in on products that are more timeless, practical, and iconic, such as a Lady Dior handbag or Ferragamo loafers, over novel designs or an extravagant thousand-dollar sweatshirt.
“Limited” revenge spending also points to the high potential of resale for established luxury brands. In fact, experts predict that brands will be looking into ways to take the luxury resale market into their own hands, by including second-hand shopping zones in their own stores, offline and online. Rolex, for instance, is one brand which has already begun to embrace its notorious resale value by launching a programme to sell certified pre-owned watches just last month. This is a smart move for luxury brands as sustainability and greener consumerism are trending across industries and all sectors.
While major brands intensify in their popularity in the upcoming year, we’ll have to see how smaller luxury brands perform as we move further away from 2020-2021.
A New Class of Consumers
Amongst the number of factors contributing to luxury’s recovery and remarkable growth, the increasing dominance of millennial and Gen Z consumers and the growing acceptance of e-commerce as a legitimate channel of luxury purchase are two which cannot be overlooked, especially as they pertain to luxury’s largest market—Asia.
Gen Y and Gen Z accounted for the entire growth of the market in the past year. Millennials have become the largest age group for luxury customers, estimated to contribute about 45 per cent of luxury goods sales worldwide. While Gen Z understandably take up much less space than millennials in this realm, with the eldest of the generation being only 25 years old at this point, Bain & Company reports that Gen Z consumers are entering the luxury space much earlier than millennials, at 15 years old rather than 18 to 20.
As China is set to become the world’s largest market for luxury goods in 2025, market watchers are particularly fascinated by consumer behaviour of the nation’s millennial and Gen Z populations. Mainland China currently has five times more millennials than the US’s 72 million and three times as many Gen Zs as the US. What’s more critical than China’s headcount over the US though is the market influence of these young people. Daniel Langer for Jing Daily analyses that China’s Gen Z is the wealthiest generation to enter the market, especially as a result of the one-child policy. According to him, Gen Z display an even more precocious attitude towards luxury goods than millennials. Millennials and Gen Z combined, nevertheless, represent the most informed and digitally-savvy customers the market has ever seen, able to rely on technology to carry out their consumerism, from gathering information and “window shopping” through to the payment stage.
Embracing the Omnichannel Strategy
Pre-pandemic, many luxury brands were wary of selling online, believing that the highest level of craftsmanship, authenticity and service could only be observed in person and that that’s what luxury customers all demanded. This has certainly changed following a year of lockdowns and not being able to go anywhere, as well as concurrent breakthroughs in the field of virtual reality. Now brands can actually offer more value to luxury customers—particularly their millennial and Gen Z customers—in virtual spaces. One of the clearest examples is a Gucci bag selling for more in Roblox’s virtual world than it does in real life.
This is an impetus for luxury brands to take advantage of emerging tech and digital spaces and embrace more of an omnichannel sales strategy. In fact, affluent consumers in Asia-Pacific have been shown in recent surveys to value brand connection and customised experiences more than the global average. One of Asia’s lead online fashion retailers, Zalora, for example, which currently operates in six Asian markets including Singapore, Indonesia, and Malaysia, has noted significant growth in sales following the expansion of online payment options to include more local wallets and payment plans. Zalora’s CEO, Gunjan Soni, even noted that luxury consumers were by far earlier adopters of new tech.
Similar success has been experienced by retailers in the physical space as well. Siam Piwat, the management behind Thailand’s Siam Paragon and IconSiam luxury department centres and many others, reported that its network of malls had surpassed sales targets in the final quarter of 2021 by embracing a multi-channel touchpoint strategy. Saruntorn Asaves, one of Siam Piwat’s business heads and managing directors, explained, “We focused more on high-spending customers by offering services via social and e-commerce, Call & Shop, Siam Paragon Luxury Chat & Shop and Ultimate Chat & Shop, as part of Siam Piwat’s initiatives to help all retailers and partners to sell their products.” In particular, the company launched the OneSiam SuperApp in late 2021, promoting it heavily throughout 2022. The app connects more than a thousand of the brands and businesses carried by Siam Piwat directly to engaged shoppers, and Siam Piwat seems to be banking on the app to drive sales among registered members by at least 30 per cent year on year.
In discussing the current situation of the luxury industry, Bain & Company’s lead author of the Global Luxury Goods and Fashion practice, Claudia D’Arpizio, refers to the “nouvelle vague”, a new wave of the luxury goods market that will “demand evolution amid disruption, adaptation amid uncertainty, and an expansion of creativity in all of the basics—all while new trends and concepts develop.” The good news is that this new luxury industry has been primed to be more resilient to recession. Even in this face of great uncertainties, such as China’s Covid response strategy and the war in Russia and the Ukraine, the market appears better equipped to cope with economic turmoil with a strong, growing consumer base and new standards for a multi-touchpoint ecosystem.
