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- 1 Jul 2010
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Bain’s Top Ten Predictions for the Luxury Industry & What They Mean for You


Consultancy firm Bain published their annual market study and forecast for the coming decade back in November 2009. As the industry reflects midway through 2010, LS looks at what their predictions mean for luxury companies today.

The core message of Bain’s 8th edition of its annual luxury goods market study was that 2010 should see positive sales growth of 1%, although recovery was not expected before 2011 when 4.2% growth in the industry for the full year is anticipated. And, chiming with a tune that’s starting to sound familiar, the drivers of this growth were expected to come from Chinese and online sales.

Bain’s Claudia D’Arpizio who presented the consultancy’s findings at Altagamma’s 2009 Osservatorio was upbeat about the future for luxury: “Luxury goods markets are stabilizing. We are seeing less discounting and mark-downs and more signs of increasing consumer confidence. Growth will be timid in 2010 but it’s showing movement in the right direction.”

There were ten key forecasts which were highlighted for the sector going forward into the next decade. LS takes a more detailed look at what they mean:

1. Younger consumers and new groups such as working women will become the dominant segments as baby boomers age and retire.
This means thinking about a market that is potentially time short but money rich. Look to companies like Net-a-Porter who have honed a convenience-focused luxury experience. Think about how to remove the hassle from accessing your product or service. Edit your selection, bring the product to the consumer, anticipate your customer’s needs and build your service around their lifestyle. Also consider how best to build relationships with young consumers now- they will be your core consumers in the future.

2. Aspiration will evolve into new relationships with brands as consumers look to fill different emotional needs with their luxury purchasing.
The definition of luxury has changed. People value time, timelessness, experience and personal customisation over ostentation and ephemeral ‘It’ appeal. Build emotion into your brands and products. Look to Anya Hindmarch who has capitalised on the market for bespoke pieces which evoke a sense of meaning and permanence. How could your product be portrayed as a receptacle of meaning and emotion?

3. Retail networks and product offerings will see greater and greater customization by country and even by city-one size fits all has stopped working.
You’ve heard it before, but get to know your consumer at a local level. Local knowledge is invaluable. Don’t impose a cookie cutter template onto a new environment. Where possible recruit local employees and customise your product and its presentation to the culture that you are entering. Look to Rocco Forte whose hotel chain is consistent but always geographically and culturally adapted or Paul Smith whose retail outlets are diverse but always full of targeted character. The British designer and businessman allows the managers of each retail outlet to control their own buy because he believes that they understand their customer best. Think about devolving power to make your brand more nimble and more relevant.

4. Growth in China, South Asia and Central Asia may cause Asia to overtake Europe and the Americas as the largest global luxury market region.
Asia has partially dulled the impact of slower markets in Europe and North America. Investment in emerging markets has also seen the greatest growth in new openings of directly-operated stores (DOS). China, elsewhere in Asia, the Middle East, Eastern Europe and Central Asia are all key growth areas. So-called Tier 3 cities in the U.S. (e.g. Denver, Tucson) and the rest of the world are also looking attractive development areas. Companies need to think about timing their entry into these emerging markets.

5.Asia’s diversity (more than 15 countries, more than 300 cities, and more than 50 million consumers) will stretch luxury brands’ marketing and supply chain capabilities.
This has already been seen in China – LS reported on the issue with managing labour here. Companies need to remain flexible and open-minded within a potentially difficult business environment.

6. Market pressures in a turbulent recovery will drive a second wave of luxury consolidation.
By now people are aware that the luxury industry is not recession proof. That simple fact has alone changed the face of the industry forever and awoken brands to the need for energy and evolution. Read LS’s report on the super rich demographic who do seem to be defying the mainstream economic trends.

7. New luxury players will emerge as tastes and consumers change, including brands based in emerging market companies.
Keep evolving to stay relevant while continuing to tell your brand story, or you will be overtaken, although so far this trend has not been as strong as some of the other Bain predictions. In fact brands like Hermes with a rich heritage and DNA have weathered the storm well by continuing to efficiently do what they do best.

8. The luxury shopping experience will transform as direct-owned stores, department stores and outlets look for ways to draw in the decade’s new luxury shoppers.
In a recent interview with editor, Dolly Jones, at Fashion Business Club Marigay McKee of Harrods talked about the transformation luxury stores have gone through from ‘schools’, educating shoppers to hospitals, ‘prescribing’ purchases to the ‘homes’ they are today. This hypothesis is reflected in Louis Vuitton’s decision to dub their new flagship a ‘maison’. McKee’s expert view is that effective retailers must now play host to consumers. Think about integrating hospitality, relaxation and comfort into your retail outlet. Lifestyle merchandising should now go hand in hand with an in-store lifestyle experience. Look to brands like Dunhill who have merged the concept of a store and a gentlemen’s club in their London flagship.

9. Online retail is still in its infancy, but quickly becoming more than a niche.
Online is proving to be a growth area, with a roughly 20% increase worldwide, but this channel still accounts for less than 3% of total sales. The luxury sector is already a little late but now it’s certainly time to join the online party. Link your online sales shop up with traditional advertising and other digital and social media to create a competitive online profile. Read the essential LS guide to fashion advertising.

10. Retailers will treat new shoppers as “in play,” and offer products competitive with those produced by typical luxury brands.
In womenswear many shoppers began the year by cutting back on their shopping habit, deferring new purchases and shopping in sales and online at discount sites. Men too streamlined their spending habits. Even as consumers return to stores, accessible brands need to work on creating important points of difference to avoid being eclipsed by fast fashion alternatives. LS has also just reported on the trend for luxury department stores to create their own lines as competitive alternatives to established luxury brands.

Bain & Co