The luxury market is showing signs of recovery following the impact of the pandemic, thanks in large part to China and the US. According to The True-Luxury Global Consumer Insight Report by BCG and the Altagamma Foundation, the future of the luxury sector looks promising. However, it is worth noting that only the upper echelon of luxury consumers experienced an increase in consumption during the pandemic.
A survey conducted by BCG of 12,000 luxury consumers revealed that US consumers are returning to the luxury market. Despite this positive trend, the industry is far from returning to pre-pandemic levels as Chinese consumers continue to repatriate their spending. This shifting trend among Chinese consumers could have significant implications for luxury brands in the future.
One key driver of spending growth is younger consumers, specifically those in the Millennial and Gen Z age groups. These consumers are expected to constitute 60% of the total luxury segment by 2025. In 2020, only the highest luxury spender clusters experienced growth, while the ‘Aspirational’ segment, which comprised 90% of the population and 62% of the value pre-pandemic, suffered the most. Its market share dropped to 55%, while the ‘True-Luxury’ category’s share increased from 30% to 40%. This growth was primarily fueled by affluent consumers, who saw a value growth of approximately 17% and an increase in their overall share from 6% to 12%. This can be attributed to the fact that consumers with higher personal wealth were less concerned about job security and future finances compared to those with lower affluence.
Although the pandemic is ongoing in some markets, it is clear that it is receding in many others. The report suggests a rebound effect, with a growing desire for luxury in the post-Covid world. High-end consumers have positive spending expectations, while younger consumers are optimistic about the future.
While consumers in the US and China remain upbeat, Europeans are more cautious about domestic spending and express pessimism regarding foreign spending over the next 12 months.
The post-pandemic luxury segment is expected to undergo changes compared to the pre-pandemic era. Chinese consumers are increasingly spending their money within their own country, and their tastes appear to be diverging from those of Western consumers. Interestingly, European and US luxury shoppers expressed the intention to shift towards a more understated style, while Chinese respondents confirmed their intention to continue in the same direction as before the pandemic.
Digitalization has become crucial in the luxury industry, particularly with the rise of live-stream shopping and the shift of consumers and luxury brands online during the pandemic. In the US, the market potential for live-streaming is estimated to reach $25 billion by 2023. Virtualization, especially in gaming, is also gaining traction. Among consumers who are aware of virtual online games involving luxury brands, 55% have purchased in-game items, and 86% of them have subsequently purchased the corresponding physical version. The report also highlights the importance of creating a seamless omni-channel experience for consumers while still maintaining a personalized touch.
Brands need to consider their purpose and responsibility, as sustainability is increasingly influencing consumers’ purchasing decisions. Over 60% of respondents reported taking sustainability into account when making buying choices, rising to 70% among Millennials and Gen Z.
Furthermore, the impact of new business models such as secondhand and rental is becoming significant. Kering’s recent investment in handbag rental business Cocoon exemplifies the importance of this trend. The report reveals that consumers are becoming more open to the idea of renting luxury items, with 18% testing this possibility in the past year, a 13% increase compared to the previous year. Additionally, more consumers, particularly younger age groups, are selling their pre-owned luxury items, with 44% of Gen Z and 37% of Millennials doing so in the past year.
Overall, the global luxury market is slowly recovering, with China and the US leading the way. The industry is witnessing changes in consumer behavior, with younger generations becoming increasingly influential. Digitalization, sustainability, and new business models are reshaping the sector. As luxury brands navigate the post-pandemic landscape, they must adapt to these shifts in order to thrive in the future.
Useful Links:
– Business of Fashion: BCG and Altagamma
– Jing Daily: Luxury and Outer Space Conflict
