Analysis of Global Luxury Market

Analysis of Global Luxury Market

Luxury is one of the most resilient industries there is. It’s also one of the fastest to rebound after a crisis. And once again, it did. The global luxury industry bounced back faster than expected, with fundamentals looking stronger than ever.

Though 2021 was a challenging year in many ways for the luxury industry (encompassing both goods and experiences), it was an improvement from 2020, with worldwide sales reaching approximately $1.29 trillion USD. That alone is worth celebrating.

Luxury is one of the most resilient industries there is. It’s also one of the fastest to rebound after a crisis. And once again, it did. The global luxury industry bounced back faster than expected, with fundamentals looking stronger than ever.

Taking a closer look at the different segments, the personal luxury goods’ category is leading the charge—growing at 29% year over year in 2021 versus 14% for the luxury industry as a whole. However, growth in 2022 will vary widely depending on the category you’re looking at, as the different parts of the world recover at different speeds across each segment.

We expect the very meaning of luxury will continue to evolve in 2022, becoming even more diversified and contextual.

Customer centricity and relevancy—and as a result, desirability—have never been more important for businesses. Affluent consumers’ demand  for seamless cross-channel experiences, always-on convenience, luxury as investment, and genuine commitment to sustainability, inclusivity and social responsibility,  will only grow stronger in 2022.

To thrive, luxury brands will need to deliver a timely and timeless form of meaningful value and empower expressions of individual identities.

We believe “New Frontiers” will be one of the key themes to take centre stage in 2022, with new worlds for luxury brands to explore and engage with their affluent consumers. And that means a growing sense of phygital fluidity and bolder moves towards more seamless multidimensional virtual realities.

The future of luxury: 3 macro shifts

Online will soon surpass all other luxury sales channels

Global lockdowns in 2020 and 2021 were the perfect stepping stones for online luxury sales channels to prove their worth. Early digital adopters saw exponential growth, while latecomers were forced to rapidly adapt and (finally) embrace digital. The share of online sales nearly doubled for personal luxury goods, growing from 12% in 2019 to 22% in 2021, reaching $70.1 billion.

In 2022, online luxury sales will continue to outpace most other channels across all industries. Even the luxury car category will see online sales growth. It’s now not a question of if but when will online sales surpass all the other luxury sales channels to drive the most revenue for the industry.

Global consultancy group Bain & Company forecasts that online sales will indeed become the single biggest channel for personal luxury goods by 2025, making up 30% of the global market, followed by monobrand physical retail stores (28%), outlet stores (14%), specialty stores (11%), department stores (11%), and travel retail (6%).

Websites and mobile apps are indeed the new dominant sales channels for most brands. Considerable work has been done to improve user experience online and build trust by reassuring customers that returns and exchanges can be done seamlessly.

Interestingly, we also see brands increasingly driving sales through their own websites. Gucci, for example, is increasingly empowering customers to purchase goods from their directly operated stores, with a focus on ecommerce, instead of relying too heavily on online multibrand retailers like FARFETCH and NET-A-PORTER, reflecting the luxury House’s strategy of “gradually enhancing the exclusivity of its distribution network.”

Luxury brands’ direct online sales now account for 40% of the online segment, compared to 30% in 2019, driven by improvements in ecommerce, exclusive collections, and more marketing budget allocated to the category.

The online channel growth also shows how important the younger customer demographic has become for the global luxury industry. Gen Z and Millennials are indeed the industry’s growth engine (see our second macro trend below).

Millennials and Gen Z drive luxury growth at accelerating rates

Without a doubt, Millennials (Gen Y) and Gen Z customers will continue to assert their position as critical growth levers for the luxury sector in 2022. And this generational shift will only accelerate in the coming years. Together, these younger generations of affluent consumers are set to account for 70% of the luxury market by 2025 and contribute 130% of luxury market growth. Yet, they are still underserved by many luxury brands. 

As the largest segment of luxury buyers, these next-gen affluent consumers are already rewriting the luxury rulebook with their value-driven expectations and digital-infused lifestyles.

To grow, luxury brands must understand how to relate to and win over these younger generations. It’s not just a question of pivoting at speed in an ever-evolving market but also a capacity to shift their business mindset.

Indeed, these younger cohorts are digital natives and both creators (they want to co-create with brands) and critics: they love to seamlessly engage with online content and are expecting luxury brands to operate at their high standard.

With a vested interest in giving back and being among the most vocal and socially active consumers, younger generations (Gen Zers perhaps even more so than Millennials) also value authenticity and integrity from brands. Sustainability, in particular, cannot be an afterthought; it must be honest, transparent and backed by action.

Thus, for luxury brands to remain in sync with younger global luxury consumers, they need to communicate their stances on environmental, ethical and social issues and most importantly deliver on these goals.

The $725 Billion question: What will China do?

Chinese affluent consumers will come back to driving the majority of worldwide luxury sales between 2022 and 2023, but things might be about to change.

In 2020 and 2021, we saw for the first time domestic luxury sales in China surpassing international sales due to travel restrictions. Domestic sales accounted for 21% of global sales in 2021 versus just 11% in 2019. In parallel, we also saw US domestic sales surpassing Chinese domestic sales, growing from 22% in 2019 to 31% of worldwide sales in 2021.

Bain expects Chinese consumers to surpass their previous share of global luxury goods sales to reach 40% to 45% by 2025. Based on our projections, that would represent $725 billion worth of sales being driven by Chinese consumers, out of a total market of $1.69 trillion.

Luxury trends that will shape 2022

Into the Metaverse: Worlds of creativity at play

At the crossroads of digital, gaming, AR, and VR, the metaverse―a portmanteau of the words meta (meaning beyond) and universe―represents another significant opportunity for luxury brands.

In 2022, we expect luxury brands to launch dedicated virtual experiences to enhance their customers’ experience both online and offline. Online, this will mostly happen through the brands’ own websites and one-off VR experiences. Offline, we expect augmented reality experiences to delight customers in-store and post-purchase, adding a virtual layer to a handbag or a pair of sneakers, for example.

For the metaverse to broaden its appeal, we’ll need significant technological improvements, particularly with AR and VR headsets. Gucci and Balenciaga already filed trademarks for smart glasses and connected clothes.We think 2022 will see the first releases of such products. They won’t be perfect, but they will capture the affluent consumers’ attention as more of our lives takes place online.

Investment bank Morgan Stanley estimates that the metaverse and NFTs will make up 10% of the entire luxury goods market by 2030, representing a $56 billion revenue opportunity, of which $10 billion to $20 billion will come from an entirely newly addressable digital market.

The bank thinks that brands that focus on soft luxury such as ready-to-wear, small leather goods and shoes, are particularly well-positioned to benefit from the metaverse as affluent consumers’ demand for digital fashion grows.

Seamless shopping: Social commerce goes live, globally

In 2021, TikTok (one of the very few apps to surpass 3 billion downloads globally) announced TikTok Shop in partnership with Shopify, allowing for products to be tagged in TikTok videos.

In testing phases in the UK and USA, the native shop will be further rolled out to other markets in 2022.

Social commerce—from in-app checkouts on social media to live stream sales—is set to continue to grow as the digital space become that much more shoppable (with improved platform functionalities for a more seamless shopping experience from discovery to checkout) and consumers are increasingly seeking entertainment and engagement in their shopping experience.

Already popular in Asia for some time, live shopping will grow in popularity in 2022 across the world. See our story on how luxury brands use WeChat to engage with affluent consumers in China to learn more.

A new luxury frontier: NFTs and fashion gaming

NFT represents multiple opportunities for luxury companies.Firstly, they are a tool to verify authenticity and ownership of an item: counterfeit products are an issue for the industry and blockchain helps tracing the origin of an item, its history and previous owners allowing a product’s ownership to be easily transferred and products traced and re-sold. This feature is also very helpful in the secondhand market, by allowing consumers to verify their purchases.

NFTs can also be used to sell digital collectibles, by which we refer to limited edition or one-of-a-kind pieces of art and not real utilities. Many brands are creating short movies or paintings, also featuring collaborations with artists, and auctioning them through certified auction houses. The market for this type of NFT objects is made up of collectors or wealthy consumers looking for rare digital collectibles.

Another use for NFTs is to create digital skins for avatars in video-games. In this case the target is Gen Z, for whom gaming is a highly popular activity. For this generation, gaming means playing esports (a market exceeding one billion dollars in global revenues in 2021) and creating communities of players that interact in a digital world in the same way that they would do in real life. The connection between luxury and gaming is that they both provide aspirational experiences, escapism, and a sense of community.

 

 

 

The Future of Luxury: 7 Trends To Stay Ahead in 2022,by Florine Eppe Beauloye LUXE DIGITAL, January 9, 2022