The seemingly insulated luxury market has never experienced a year like 2020 when personal luxury goods sales dropped $78 billion from 2019 – a 23 percent decrease year-over-year – to a total $266 billion in 2020.
With the pandemic threatening both consumers’ health and finances, the industry’s decline was more than double the 9 percent drop experienced over two years during the 2008-2009 recession, according to Bain & Company. It is not expected to recover to 2019 levels until the end of 2022 or early 2023.
Luxury Through the Ages
Bain is fond of christening various time periods in the luxury market: 2001 to 2007, the years of democratization; 2008-2009, the years of crisis; 2010-2014, the era of Chinese shopping frenzy; 2015 and 2016, the reboot; and 2017-2019, as luxury’s new normal. I’ll offer a suggestion for 2020 and beyond: the era of conscientious luxury.
The luxury market is entering a new age of conscientious luxury, as opposed to conspicuous luxury, which has been the driving force in the luxury market for the last 50-plus years. Luxury companies will be forced to adapt or be left behind.From the State of Luxury 2021 Report
As 2021 dawns, it will be a year of transition for the luxury market and reset brought on by the Covid-19 pandemic. The luxury market is entering a new age of conscientious luxury, as opposed to conspicuous luxury, which has been the driving force in the luxury market for the last 50-plus years. Luxury companies will be forced to adapt or be left behind.
Changes 2020 Brought to the Luxury Market
Unity Marketing just completed its annual State of Luxury report. The research includes results of a survey conducted among ~500 luxury industry insiders, including luxury goods and services executives and advertising and marketing agencies that serve luxury brands.
In my analysis, two themes emerged prominently to disrupt business-as-usual in 2020:
- Lots of time to buy at home: The time luxury consumers spent at home resulted in dramatic shifts in their buying behavior, notably the abrupt shift to online purchasing, which doubled its market share from 12 percent in 2019 to 23 percent in 2020
- Nowhere to go: The travel bans put into place early in the pandemic crippled luxury hospitality and cruise sectors, which totaled $255 billion in 2019, according to Bain. Even as the bans lifted, affluent travelers were reluctant to venture too far from home. All of which resulted in the loss of vital tourist spending on personal luxury goods, which McKinsey estimates accounts for between 20-to-30 percent of luxury goods sales.
All Those Familiar Places: Closed
Not only are jet setting tourists grounded, most luxury consumers are not dining out, going to work or attending events. The need for new things has been reduced, especially those luxury essentials, out of reach for most customers. “Less socializing has reduced the need for fashion apparel; it’s exacerbated by less travel these days as well,” says one luxury insider.
What little shopping luxury consumers are doing is now primarily conducted online, which doesn’t have the service experience or thrill of in-store shopping. “As a luxury brand, we have an intimate relationship with customers. We can’t meet, talk to or interact with customers like we used to,” says a luxury brand executive.
Online is often a poor substitute for that personalized, one-on-one contact, but luxury brands have been forced to pivot. “Most of our clients have had to move from offering special, targeted, bespoke in-person experiences to their luxury customers to pivoting to imaginative and innovative ways to offer luxe experiences digitally,” explains an agency executive.
Home as Luxury Commerce Center
The pandemic has forced luxury brands to fully embrace ecommerce, something that many brands had been slow to do. After doubling its market share in 2020, ecommerce is set to become the leading channel of distribution of luxury goods by 2025, reaching 30 percent.
With luxury consumers saving vast sums from not traveling and dining out, they have invested that money back into their homes. The $51 billion in 2019 high-end home furnishings market will enjoy a boost this year, as will the companies that provide services to luxury homeowners, such as interior designers, architects, lighting designers, landscapers and contractors.
As a result, any number of luxury brands have been testing the waters in home decor or expanding their existing products, including Louis Vuitton, Hermès, Gucci, Bottega Veneta and Ralph Lauren.
Over the five-year history of our luxury insiders’ survey, one concern keeps cropping up among respondents: The traditional meaning of luxury is under threat. As a new generation of affluent consumers has emerged globally, the old ideas of luxury seem to have less meaning and relevance, and it caused the industry to question how to move forward.
“It is not so much that luxury has lost its meaning, as it is that luxury has to evolve its meaning,” was an insightful comment from last year’s survey. This year, respondents say, “We need to reinterpret luxury from labels and conspicuous consumption to a quest for goods and services that are personal, authentic and unique,” and “In an effort to drive growth, luxury loses its meaning and unique place in the consumers’ frame of reference. It becomes too intertwined with digital accessibility and catering to the mass. Luxury still needs to feel special and luxurious!”
It’s been widely reported that the pandemic didn’t necessarily change trends in the market, rather it accelerated their evolution. So, this past year has forced luxury brands to more closely examine their businesses and business models, as luxury consumers have been examining their own behavior and values.
“It has made people drill down to what is really important, what has lasting and enduring value in their lives,” says one insider. “People are reassessing what is important to them and what they can and cannot do without – what is truly essential in their life. The pandemic has been the biggest reset ever,” says another.
The research reveals that needs have won over wants, which threatens luxury since it is the most discretionary of all purchases. That being said, it all depends on how needs are positioned; one person’s luxury is another’s basic need.
The End of Conspicuous Consumption
Luxury insiders repeatedly refer to a rising “conscientious consumer,” deeply concerned about the environmental and societal impact of what is perceived as conspicuous, “shop ‘til you drop” consumerism.
“Over consumption or blatant consumerism is perceived as inappropriate and insensitive. Going forward, luxury purchases will be based more on what is individually important or valued. People are now thinking first before making a spontaneous purchase. It’s rationalized buying,” says an insider.
Unlike in previous recessions where only people’s financial status was affected, the pandemic has threatened our very lives. “People are rethinking what is really important. They are literally taking stock of their possessions. Priorities are shifting to what is really important in people’s lives. They are evaluating what they want versus what they really need to live a happy, healthy life,” observes an insider.
The prescription to unbridled consumption is described by a luxury marketer, “We have to return to fundamental and universal values of health and well-being, a quest for more sense of how people think and live. We have to return to excellence and the mastery of crafting things. It is a privilege to invest in luxury, show luxury and engage in luxury. We have to build the desire to create a meaningful life in meaningful surroundings with added value experiences about what we [our brand] are and what we stand for.”
As Covid-19 has forced consumers to question their need to acquire more goods, it has caused brands to refine their business models. “People are now treating luxury as investments. The luxury market must convince consumers that their luxury goods purchases are assets. The mindset that these purchases have inherent value will be an important fact as everyone considers their spending power,” notes an insider.
“It’s a post-aspirational luxury consumer. People are attuned to the huge separation between the haves and the have-nots. It is a call for high quality and being a brand with a purpose, not just displaying huge logos and calling that luxury,” says another.
Consumers’ Quest for Deeper Meaning
Successful brands are customer-centric, and the dynamic changes to consumers’ value systems calls on luxury brands to align their branding, marketing and operations with this shift. While one insider notes that time will tell whether consumers will continue on this new conscientious consumerism course or revert to their old ways, the extended time people have spent at home has likely changed their old habits and will continue long into the future.
Dr. Martina Olbertova, founder of Meaning.Global, and arguably the world’s leading expert on brand meaning, provides a perspective:
“Consumer habits are undergoing a rapid change today as the new generation of consumers focuses on expressing their individuality rather than ownership. The consumption of luxury is becoming less and less about the brands themselves and more about empowering people to become more of what they are. This shift pushes luxury brands to be the active agents in their customers’ identity creation, which goes far beyond the traditional limits of luxury branding. It reverses the industry dynamic from aspiring to own brands to empowering people and their individual identities.”
Back to the Future
In a refreshing way, luxury brands may return to their roots and their true legacy value. Just pumping out more high-priced, mass-produced stuff with prominent logos to feed consumers’ demand for visible symbols of success is no longer luxurious.
Olbertova believes this health crisis, which slowed down the whole world, will give luxury brands a pause so that they can look inward to probe more deeply into what their brands mean now and should mean in the future. “This is a time to create and strengthen brand perceptions, which ultimately create value. That’s all anchored in meaning,” she shares.
For 2021, the opportunities are bright for brands that have learned from the many challenges they faced in 2020. “There will continue to be some shrinking of the market and that’s actually good,” says a luxury insider. “We have too much product, and it’s not necessary. People need less but want better.”
The true opportunity in 2021 is to create a new vision of the luxury market that builds on its great past, rather than simply reacting to the fickle, shifting tides of consumer trends.
“We can’t afford to repeat the same solutions over and over again, like only investing more money in tech to solve our problems,” an insider shares, and continues, “We need to start at ground zero and reinvent the industry proactively rather than simply reacting to current conditions. It requires listening actively and creatively to the voice of the consumer.”
Note: This article originally appeared in The Robin Report.