The Future Is Female
Women are already the key decision-makers for households across the planet. Yet with greater financial autonomy and higher employment participation rates, the female spending power is on the cusp of becoming much greater. As women get married later and have fewer children, the higher disposable income, notably at a young age, will also support increased luxury spending. While economics will support female-driven consumption, societal change around gender inequality seems to have accelerated recently, and many initiatives are under way to improve the economic position of women. Women should greatly influence spending in jewelry, cosmetics, handbags, accessories, and much more.
All Points East
Six years after the publication of The Bling Dynasty, China has become even more important for the luxury sector in terms of contribution to sales for all brands. We are by no means at the end of the journey. Asia will continue its strong support of the luxury sector, with China as the main driver of growth over the next decade. Four main trends will be associated with this growth:
- Wealth creation will continue to fuel the next generation of Chinese shoppers, with the number of potential luxury clients close to doubling over the next five years.
- Chinese travel is supported by wealth, regulation, and infrastructure, while bragging rights from purchasing remain a factor. However, the bulk of growth should come from China itself with four good reasons to shop at HOME: Harmonization of prices, the rapid development of Omnichannel buying, the administration’s Monitoring of consumer spending, and increased Education about where to purchase genuine luxury products. Short term, CoViD-19 has been an accelerator of this repatriation of growth in the mainland.
- China’s luxury market is becoming one of the most profitable on earth after having been margin dilutive for years.
- Finally, adoption of luxury in other Asian markets is either reaching a ceiling (Japan, Taiwan), getting mature (South Korea), or too small to move the needle for now (India, Indonesia).
The Power of Youth, Inclusion, and Diversity
Luxury buyers start young for many reasons, but the essential one is human nature and buying your place in society. Whether in China, the U.S., or emerging markets, the modal age of the population is much lower than in Japan or Europe. While the population of Asian youth will shrink in terms of proportion, the growth in absolute numbers will support the sector. In the West, youth demo- graphics is increasingly diverse. The young generation of luxury buyers—including, most notably, people of color—around the world have transformed the luxury industry and should continue to do so, particularly in certain areas:
- Casualization: a more relaxed way of dressing up is not a fad, it is a generational shift.
- Social media: widespread information and the search for authenticity will put pressure on brands to have thoughtful, genuine messages.
- Values: With climate protests, ESG issues going mainstream, and a diverse generation that cares, brands need to behave and respect the planet as well as cultural differences and sensitivities. Younger generations are clearly purpose driven and expecting the companies they buy from to start “getting woke.”
Scale in the luxury sector confers VAST advantages related to voice, authority, synergies, and talent, so it’s no wonder the major players will strive to grow even bigger. M&A is a function of the benefits of scale and will be influenced by increased cash on hand, the importance of hedging, and personnel dynamics. All of this will ensure more consolidation. LVMH should remain the main luxury aggregator, but expect other groups to consolidate the industry as well.
Brick and Mortar Is Immortal
While the consumer world is going online, e-commerce will have some limitations as a contributor to luxury brand sales, almost by definition. Separately, many luxury brands might aspire eventually to control their distribution as strictly as Louis Vuitton does. DNVBs control their sales and data, and that is what makes their business models similar to luxury, but most will also have to diversify out of just relying on online sales. Brick and mortar is still the future for luxury, and in that context, I see greater potential long term for growth in travel retail concepts than online. Of course, the stores of tomorrow will not be comparable to the ones you are experiencing today, and as long as your main target is not just to sell, you should do well as a brand by offering consumers a unique experience and a place to spend time and socialize, learn, and be entertained. NPS should be the measure of success of a retail location, more so than like-for-like growth, the traditional and likely soon-to-be obsolete manner of measuring retail performance.
In theory, affordable luxury should have great growth potential as brands in the sector tap into a quick development in middle-class clienteles. In practice, at least for the key handbag and accessories segment, growth is likely to be difficult. Outside of core leather handbags, though, a lot of growth potential remains in affordable jewelry and ready to wear as long as execution is rigorous
The Luxury of Health
Health is a major concern for many consumers, and they are ready to invest in order to live healthier lives. Spending on the so-called trinity of health (diet, exercise, sleep), as well as on mindfulness products, could divert from spending on traditional luxury products— especially given the greater overlap today between brands and experiences that make you feel healthy and luxury propositions. If anything, the CoViD-19 outbreak in 2020 will accelerate consumers’ greater focus on health and wellness.
The “Premiumization” of Everything
Everything can be premiumized, from coffee to clubs, cannabis to entertainment. The issue the traditional luxury brands will face is that the next generation of consumers will be diverting their spending away from plain vanilla product categories like watches or handbags to free up spending on products or experiences that they will perceive as being edgier or more in line with their values. For the time being, the luxury sector is still in a recruitment phase and will be resistant to these changes as long as that remains the case. As traditional luxury evolves to become a repeat purchase business, however, the threat from alternative spending patterns will rise.
Travel – and Arrive
Travel trends are well supported by wealth creation and will be a positive factor for luxury demand ahead as with travel come bragging rights. In that context, the CoViD-19–induced stay-at-home reality of 2020 should not be a great influence in the long term even if consumers will be intent on keeping safe. Structural factors will enable travel to thrive, notably the lower costs, greater awareness of destinations, and increased safety of the world. As with luxury demand overall, the continued emergence of a wealthy Chinese consumer will dominate travel trends and the associated spending for the next ten years. This consumer will change destinations depending on foreign exchange moves, political and security concerns, and fashion trends. One big concern, however, remains: travel comes with high greenhouse gas emissions, and as we will see in the next chapter, being environmentally friendly will be increasingly important to the up-and-coming luxury consumers.
Disrupting Luxury: The Decade Ahead
Ethical transparency, production traceability, and environmental sustainability are not mere buzzwords for the young generation. Whether due to lab-grown diamonds, faux fur, or secondhand apparel, the next decade will be very disruptive for a sector that has arguably become complacent while enjoying a decade of strong growth rates. Existing luxury companies need to have alternatives in mind and possibly invest in them as a hedge for when their own current businesses might be affected by these emerging categories.
Recognizing the existence of a circular economy, environmental, sustainability, and governance issues will not be merely a fashionable conversation or an opportunity to greenwash. A genuine transformation of processes is needed as the next consumer will not be gullible and they will be asking questions. A substantial amount of growth potential remains to be harvested.
The question is whether the industry will be brave enough to self-disrupt. Sometimes change only comes when managers don’t have a choice. During 2020, an ongoing joke was: “Who took care of your digital transformation? Your CTO? Your CEO? No, CoViD-19!” External shocks can hold a silver lining: as long as brands remember who they are selling to, events like the pandemic can be catalysts for change that has long been needed to avoid becoming irrelevant.
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