While the outlook for the coming year remains uncertain, emerging trends from the luxury market’s new normal may help to provide some clarity towards the implications for companies and brands to understand where to focus their attention on in the longer term.
According to the latest update from Bain and Altagamma, the luxury market is expected to reach between €250-€295 billion, depending on how strong a recovery it makes in 2021. If the momentum seen the first quarter of this year continues, Bain and Altagamma predict the market could reach €280-295 billion this year.
However, there is a stronger likelihood that full year growth may be stifled by slower domestic luxury purchases and limited intra-regional tourism, in which case a full recovery to 2019 pre-pandemic levels would be more likely in 2022, with the market expected to reach €250-265 billion this year.
What is certain is the ongoing trends in luxury have been accelerated during the pandemic and continue to reshape the landscape of luxury today, from the ongoing maturation of online, the rapid rise of the resale market as well as the growing importance of Gen Z and Chinese consumers; these drivers of the market will dictate what actions brands should take in the future if they wish to remain relevant in the eyes of the luxury consumer.
“We don't think that COVID created new trends, but what it did do was accelerate the trends that were already happening in the market,” Federica Levato, Partner at Bain and Company and co-author of the study, told Luxury Society in an interview.
“We are still not in a new normal, but we are rebounding back to sort of normality,” she added. “But the new normal will be a new normal 2.0, meaning that omnichannel will become paramount, as well as flawless interactions between customer and brand and becoming more locally driven and relevant to the customer will also become super important.”
The report estimates that more than 85 percent of luxury purchases were digital influenced in 2021, but luxury’s very nature demands the necessity of a human touch whether that be in-store or remotely, meaning interactions between brands and their customers will maintain their importance in building loyalty.
“Brands have been forced to rip up the playbook and innovate rapidly in light of the crisis,” said Levato. “As life hopefully begins to return to normal, customers are expecting a tech-enabled human relationship with brands. Winners will need to stay closely in touch with the key trends shaping the new normal lifestyle – all while remaining differentiated and creating a narrative that is true to their own culture.”
“The thing to watch out for in this industry will be how to maintain relevance for the customer, because otherwise there is the risk that customers will direct their spending towards other categories like travel and other experiences,” Levato added.
“The positive news is that the customer is present, the customer wants to buy and the global customer wants to buy this product across generations and across nationalities,” she continued. “However, the performances among brands are still very polarised, as well as the preferences of customers.”
Indeed, customer interest in issues like sustainability has meant that demand for second hand goods has rocketed in the past few years. Bain estimates that the secondhand market for luxury was worth €28 billion euros in 2020 (up from €26 billion in 2019), and many brands have tapped into this market as it reaches multiple consumer segments from entry levels customers to top spenders and collectors.
“In our opinion, it will grow in importance because brands are now realising that it is not competing with their business, but it's rather enlarging their customer base,” said Levato.
Whatever the outcome of luxury’s rebound, one thing is clear. Brands that continue to drive digital innovation, and rethink how to communicate with their customers will be in the winners in the new normal.
The leaders in luxury are those who have been innovative in the past 18 months or so, who are not only using digital as a channel but are injecting digital throughout their processes and throughout the company, said Levato.
“Those who have made digital a key focus in developing products, in developing samples and really digitising all the key processes related to this industry, the best in class have really made a step forward.”
To read more about the findings from the report, please click here.
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