A new study is out that sets the stage for a radically transformed luxury market by 2025. Millennials are driving this train, and what they expect from luxury brands is radically different from previous generations. Fasten your seatbelts, it’s going to be bumpy ride into 2025.
The study, produced by two powerhouses in luxury circles, Boston Consulting Group (BCG) and Altagamma, completes their sixth annual survey covering more than 12,000 respondents in ten leading countries, with an oversampling of consumers in the United States and China, the world’s two largest markets for luxury brands.
All told, the survey taps the perspectives of luxury consumers in roughly 85% of the total global luxury market. “We qualified our sample to include only what we called ‘True-Luxury’ purchasers,” Sarah Willersdorf, partner and managing director at BCG, told me. “To qualify for the survey, consumers had to meet a threshold of spending so that they were real consumers of luxury goods and services, and did not just have high levels of household income.”
For example, consumers had to spend a minimum of €5,000 (about $5,600) in total on personal luxury goods over the past 12 months with threshold levels of spend set for specific categories, such as €1,000 for handbags, €350 for shoes and €250 for jeans.
Overall the surveyed consumers averaged €39,000 (about $44,000) in total luxury spending. That qualifies as “true luxury” in my book.
Luxury market size and scope today and tomorrow
In 2018 the luxury market is reported to have reached €920 billion (~$1 trillion), of which €330 billion (~$370 billion) was in personal luxury goods and €590 billion (~$660 billion) was for experiential luxury, such as dining, hotels, cruise/resorts, wine and spirits, design furniture, lighting, cars, boats and smartphones/tablets.
The global luxury market is predicted to top €1.3 trillion (~$1.5 trillion) by 2025, with experiential luxury growing about 5%, far faster than personal luxury at 3%, with accessories and cosmetics expected to gain the most from 2018-2025.
Today Millennials, those born from 1978-1992, represent only about 32% of spending in the personal luxury market, but by 2025 they are expected to make up 50% of the total market. Some 130% of market growth in the next seven years will be attributed to the Millennial generation. Note: the birth years defining the generational cohorts in this study differ slightly from that common in U.S. demographic analysis.
But Willersdorf advises that the younger Gen-Z cohort (1993-2001) will have a strong influence on how fast and deep the changes in the luxury market evolve, yet they remain a mystery to many luxury brands.
“Today Gen-Z represents only about 4% of the true-luxury market, but we can’t underestimate them because of their low-purchase rate,” she says. “By 2020 we estimate that they will drive 8% of true-luxury spend. But more than that, they have a powerful influence in the market and have a different set of values and ideals than even the Millennials.”
Three trends, three opportunities and challenges
Given BCG/Altagamma’s six-year perspective on the true-luxury market, the report identifies six previously transformational trends that have stabilized. They are well established in the market and will remain part of the luxury business model, notably omnichannel distribution, mono-brand stores, made-in/country-of-origin authenticity, high-low/mix-and-match flexibility, customization and shopper tourism.
Further, four other trends are on the rise and will continue to drive demand, including the luxury of casualwear, the influence of “influencers” on consumer preferences, social media engagement and online sales, which has reached over 20% penetration as the “place” of consumers’ last purchase.
But Willersdorf and I focused our discussion on the following three most transformational trends, which are going to pick up pace from now until then. Because they are a radical departure from the traditional ways luxury brands operate, these trends need to be on everyone’s radar:
Collaborations make for strange bedfellows
Millennials are demanding that luxury brands look beyond their four walls and the traditional designers that work there for new ideas and interpretations of luxury.
“Collaborations are key to the new luxury,” Willersdorf says. “Millennials are looking for innovation in design, along with unique collections that reflect their individuality and values.”
Such collaborations, often presented in limited editions and timed drops, are most in demand in handbags (purchased by 47% of true-luxury consumers surveyed) and sneakers (33%). The most popular pairings combine luxury and streetwear, including Louis Vuitton and Supreme, Adidas and Kanye West’s Yeezy, and Chanel and Pharrell.
Willersdorf also notes that luxury brands are creating more lasting relationships with cutting-edge, youth-inspired designers, like Rihanna and her new Fenty Maison with LVMH and Virgil Abloh, men’s wear design director for Louis Vuitton.
Collaborations are all about the young, with 60% of Millennials reporting any such purchases, compared with 40% Gen-X (1963-1977) and only 20% of Baby Boomers (1946-1962).
Stigma comes off second-hand luxury
While the second-hand personal luxury goods market is small—€22 billion (~$25 billion)—its influence on the primary market way outpaces its dollar value.
Overall 44% of consumers surveyed say they consider the resale value of new items they purchase, with 50% of Millennials thinking long term to a much greater extent than Gen-Xers (35%) or Boomers (24%). And the report also notes that only 34% of those surveyed actually consign goods with second-hand sellers, which suggests a further opportunity for segment growth.
Of note, the U.S. is the leading country for secondary luxury goods, with 50% participating in it either as a buyer (18%) or seller (11%) only or both (21%). China, on the other hand, is primarily a sell market (26%), with only 5% buying second-hand and 12% selling and purchasing. Some 57% of Chinese consumers don’t participate in the secondary market.
Overall 45% of true-luxury consumers participated in the second-hand luxury market, and more than one-fourth (26%) have bought pre-owned goods.
“Second-hand luxury is rapidly becoming mainstream,” Willersdorf says. “And it is not just the lower price that attracts these true-luxury consumers. It is often the only way they can buy scarce, limited-edition, special sold-out collaborations missed the first time or vintage items.”
The most in-demand pre-owned brands are Chanel, Louis Vuitton, Gucci, Burberry and Dior. Further, 40% of all pre-owned purchases are handbags, followed by clothing (16%) and small leather goods (13%).
To keep the primarily online secondary marketers, like top-ranked Vestiaire Collective and Vinted, supplied with products, consumers are driven by the desire to empty out their wardrobes and to finance new purchases. But growing in importance are concerns about sustainability and the desire to be responsible consumers.
The sustaining power of sustainability
Since 2013 luxury consumers’ purchase decisions have shifted dramatically by their concerns about sustainability and social responsibility.
Today 56% of true-luxury consumers are attuned to luxury brands’stance on social responsibility, as compared with 45% in 2013. Some 62% say they will choose to do business with a brand that supports sustainability over a brand that does not, compared with 50% in 2013.
Interestingly, sustainability concerns are far greater for South Koreans (81%), the Japanese (70%), Chinese (66%) and French (66%) than it is for Americans (45%) or the British (43%).
The sustainable luxury consumers are primarily concerned with the environment (37%), animal care (27%) and ethical manufacturing (21%). Millennials place a higher priority on the environment (42%) and animal treatment (26%), than do Boomers whose primary concern is ethical manufacturing (32%).
“Sustainability will continue to advance in importance,” Willersdorf explains. “It will feed both the secondary-luxury market as well as give a lift to limited-run collaborations which show a brand’s respect for not flooding the market with too much merchandise.”
Gen-Z as the next luxury generation are all-in on these trends and more
As we concluded our discussion, Willersdorf warned against luxury brands overlooking the next-generation consumers, as they might have underestimated the influence of Millennials a decade ago, when they still hadn’t reached scale as true-luxury consumers.
Generational shifts are hard to adapt to, and this coming one that will be brought about by the Gen-Zs will magnify the trends driven by Millennials and at the same time be different from them. “Gen-Z have a unique set of behaviors and values. They purchase collaborations more (67% versus the average of 50%) and they are more influenced by sustainability and more active in the second-hand luxury market than average,” she asserts.
She also points to Gen-Z’s preference for mixing-and-matching and purchasing high-low. Some 56% of Gen-Zs have partially shifted spending from traditional luxury brands to premium, fast-fashion, niche and sports brands, as compared with 52% of Millennials and 46% of true-luxury consumers overall.
“As these brands, which we call ‘aspirational,’ become better quality and more sustainable, traditional luxury brands will have to get even better faster to stay in the lead,” Willersdorf explains.
Gen-Zs are also more profoundly influenced by influencers on social media, notably Chiara Ferragni, who ranked on Forbes List of Top Fashion Influencers 2017 and among the BCG/Altagamma top three influencers in this survey across all geographies.
Ferragni also aligns with the collaboration trend, having done capsule collections with Gucci. In addition, she has launched her own niche brand available online and in more than 350 stores worldwide, with flagship stores in Milan and Shanghai.
And finally, with many Gen-Zs still living at home, they are influencing the purchases of their trailing-edge Boomer and Gen-Xer parents. “Brands need to pay close attention to the Gen-Zs as influencers for the future,” Willersdorf concludes.