COVID-19 aside, the luxury industry is poised to experience a boom this decade as a result of some fundamental changes. China will become more important, and Europe will rebound. Brands that focus on attracting customers will flourish. While many brands will disappear, newer ones will also emerge.
COVID-19 aside, the luxury industry is poised to experience a boom this decade as a result of some fundamental changes. China will become more important, and Europe will rebound. Brands that focus on attracting customers will flourish in this shift. While many brands will disappear, new ones will also emerge, and the strongest brands will continue to grow. A panel of global experts talks to Abhay Gupta about trends in the luxury industry, digital fashion, new directions, NFT, Metaverse, and more.
Abhay Gupta says that despite early concerns, the Spring 2021 report from Bain Altagamma reflects a strong rebound in luxury for 2021. What’s your opinion/experience/thought on this? What is your opinion of the global luxury market despite the fact that everyone expects a third, a fourth, or a fifth wave?
Federica Levato Federica Levato: We have noticed that the luxury market has already rebounded to the same levels as Q1 2019. It has basically returned to the pre-covid level. This is a good indication of customer behavior. There are some important changes in this market, in that the target generation has changed quite a lot in the past 24 months. Gen Z is now a real target. The shift from offline to online has doubled for luxury brands in Asia and the US. Luxury brands in China have improved the customer experience, which was not apparent just 24 months earlier. We see a very active market and a customer who is very eager to purchase these products. Some certain categories and geographies are by nature slower to recover, but we believe, in general, that the market will return to its proved level by 2022’s first quarter.
Armando Branchini: Although the pandemic has had a terrible impact on everyone, the luxury sector is always in a position to react quickly, probably because the industry faces a new generation every 5-7 years.
The retail and supply sides are in a position to engage with new generations without losing their grip on the past. In 1983, 8.3 million consumers of luxury products lived in the world. This population grew by more than 50-fold to 450 million in 2019. 1983 was the starting point for me because that was the year of globalization. In 1983, the consumption volume was EUR30 billion. By 2019, it had grown to EUR1.25 trillion. This is approximately EUR1,250 billion. That’s a 40-fold increase. If you look at the balance sheets of Louis Vuitton and Gucci and compare them to those of 1983, then you will see that their growth is much greater than 40 times. This means that the industry can grow despite a number of crises like the Covid 19. In 1987, I’d like to recall the Black Monday. From 1997 to 1999, there was a crisis in Southeast Asia and Russia. In 2001, we had the dotcom boom and the September 11 attacks.
In 2003, SARS was a major issue. In 2008-09, the global financial crisis. Luxury has always entered crisis phases last and recovered first, compared to other business sectors. Federica and I are both positive.
Manoj Adlakha: 2020 has, in many ways, reset the luxury market around the world. It’s been said that luxury is one of those industries that suffer the most during times of crisis. However, it also emerges as one of its most resilient sectors. There is an inflection with digital luxury and physical bespoke experiences. Again, this is going to be very interesting in the future.
Daniel Langer, Just a quick thought and a warning because Federica has pointed out this dual development.
There are brands in total collapse and brands in super-strong performance. I would say that brands that aren’t doing well shouldn’t hope for a rebound. These brands have a lot to deal with that is homemade. They didn’t connect strongly enough with their customers, they did not excite them sufficiently, and there is a big issue with pricing. Many brands have made a lot of promotional efforts and have damaged their brand equity. They may have overreacted during the crisis. The market will not allow these brands to recover just because it is rebounding. I think the name of the game in the next couple of months and years is going to be the excitement of the customers and really kind of rediscovering, especially for those brands that are not performing so well. Luxury isn’t just about expensive products but also about creating desire and the ability to make customers want them.
This may sound banal, but when companies are busy with their execution, they tend to forget about this. I believe that we will be seeing a large number of brands disappear. I do not think this is something that can be ignored. I am a big fan of competitive advantage, so I always think that if a company disappears, then it is good. It means they probably don’t deserve to exist because, in the end, customers decide if they like a particular brand or not. Armando mentioned Louis Vuitton and Gucci. If they are doing extremely well now, it is because they were very well managed during the crises. They were able to predict consumer trends, understand where consumers were going, and be trendsetters. In the past year, many brands have taken a more “wait and watch” approach. They may have been a bit conservative and focused on price and promotions rather than being exciting.
In the coming years, I believe that we will see a new generation, especially with Gen Z. As Federica said, the stakes will be much higher. Because they’re so digitally savvy, this generation wants even better and more physical experiences at the store. Brands will need to provide solutions. If I were to analyze the best-performing brands, I am pretty certain that they have the ability and desire to connect with Gen Z, and in particular. This Chinese consumer is becoming more and more significant in the luxury sector. Brands that are falling behind don’t usually have this capability at the moment. It is important, especially for brands that aren’t performing well, to think differently and almost reinvent themselves. I would say that the clock is ticking.
Amrita Banta: We look at all markets globally and have the Trend Lens program, which runs in Europe, the US, and Asia every six months. Data was collected in different geographies, especially over the last two months. What I would like to say is that while the overall trend is positive, it’s not uniform across countries. China looks very optimistic, and we’ve seen a rebound with US brands. Some are cautious, like Japan and Singapore, which are tourist-oriented. Some parts of Europe are still wary and are not optimistic in all categories. Tourists mainly drive them. Some brands have a different impact on categories like beauty, fashion, and wine. Private banking is also booming compared to hospitality. Overall, the outlook is positive. Luxury brands bounce back faster than other brands, but there are also iconic brands that do well. It all depends on the markets. Every time a company has to review its strategy, it must localize it because each type of geography reacts to COVID differently. This is probably the best way to go.
Abhay Gupta: A common theme that has emerged in the discussions so far is that digital is the future. We are using 3D, holographic, and VR, but today, we’re talking about the metaverse. How do you believe a brand will remain relevant when we talk about a metaverse scenario? A metaverse is an intangible element of luxury. Where is the future of the world?
Amrita Banta says that the craftsmanship is at the core of any brand. Digital helps bring this story to life, accelerating the matching of the consumer to what you produce. I believe that digital and tech are just enabling the story to come alive, and this is what social media and the connection between craftsmanship and consumers can do. I would not see it as an opposition but rather something that accelerates the link.
Abhay Gupta: Why does a company like Bottega Veneta abandon social media? Suppose digital is to be used for more story communication. In that case, we all know that Bottega Veneta made a conscious decision in recent years and left all digital communication except its own. How can a brand remain relevant if it is not on social media?
Amrita Banta: Bottega has an understated personality. They have their website, and they also have fans and followers who are active on social media. These people are like brand ambassadors and promote the brand. Some people see this as a marketing strategy to differentiate the brand from other brands. As a brand, I believe they are understated and that the people who are likely to buy them do not have a strong social media presence. The personality of the brand and how it tells its story is what matters most in terms of displaying its character.
Abhay Gupta, do you think that brand storytelling will be more prevalent in the future? If you can show me examples of brands like Louis Vuitton, Gucci, and Cartier doing great stories with short and long videos but completely ignoring social media and digital advertising besides their website – will it be a new trend, or is it possible to reduce it?
Daniel Langer: It’s always fascinating to me why successful brands succeed and why unsuccessful ones are currently unsuccessful. It’s easy to blame the pandemic or other external factors, but as I mentioned earlier, there are many internal issues.
One of the things that strikes me is that I’m going to be provocative here. The majority of luxury brands have no narrative. When we look at 10-20-30 brands that are driving the majority of revenue in a particular category and do category analyses and other things, it’s quite striking. Brands tell the same story in many types except for the top brands. This will no longer work.
It may have worked five or ten years ago when there was less competition, and the market was smaller. Armando emphasized the growth of the market. Gen Z is launching so many brands in every category, from fashion to cars. I believe that the lack of a brand story is a major factor that has led to the poor performance of brands. In many categories, I’m hearing a lot of buzzwords, like sustainability. I am a big advocate for sustainability, but it is always interesting to me when brands tell me that they are the sustainable option. I ask what exactly you do better than any other brands, and I get no answer. In the digital age, the key criteria for convincing customers will be whether our brand story can convince them in digital channels or through digital media. If the answer is “no,” they won’t buy. Digital will be a major factor in 2030. Brands will have to be relevant and differentiate their content in order to win in the digital market. On the content side, I believe that many brands are severely lacking.
Abhay Gupta says that statistics show that virtual worlds will contribute $400 billion or more by 2025. I repeat that I believe that intangibles are completely taking over the tangible aspects of luxury from the digital world. This is where brands such as Gucci and LVMH really bet big when they talk about digital fashion. A digital Gucci bag was recently sold for 42 hundred dollars compared to a physical Gucci bag that cost 36 hundred dollars. Is this going to become a big trend for brands in the future or just a fad, then? Sotheby’s held a week-long event to try to sell NFTs via auction. What’s your opinion on this?
Federica Levato: I agree that the digital revolution will continue. It is not a trend. The trend will continue, but the way it is applied in the industry will differ from one brand to another. I believe the most important thing is to understand how the customer is connected. We need to move away from the idea that digital is a virtual entity and not emotionally charged. During the pandemic, we saw how luxury brands, but also brands from other sectors, connected with us authentically.
Daniel Langer: What is the reason that people are investing in categories they would never have imagined possible a few years ago? Let me give you two examples. Take the sneaker industry. Ten years ago, nobody would have mentioned sneakers or luxury. The dress shoes were $2,000, and the sneakers were $100. When I look at the high end of sneakers, you can easily pay $10, $15, 20,000, which is much more than traditional bespoke or classic shoes. I think that this is something companies should take seriously. This isn’t a fad or something you will forget tomorrow. It is here to stay. Why? It’s because it allows for more creativity. And when invention is present, there is also more differentiation.
You can always tell when there is differentiation that there will be more value created. This is also a category the younger generation is very familiar with, which is why digital art has become so popular. We must always remember that in luxury, we are creating something of extreme value to customers. This can change. Consider hats. In the past, hats were worn by almost everyone. Most people no longer wear hats, and the category is not as large. We need to examine the changes in consumer behavior. What are the types consumers are most drawn to? The backpack is another interesting category. Back in the day, backpacks were not a luxury category. I
I know someone who invented the first luxury bag, and he said that Harrod’s would not launch it because the luxury brand refused to focus on this category. In four or five short years, you will be able to buy a $5,000 backpack from Louis Vuitton or any other luxury brand. This has actually been the fastest-growing segment over the past two or three years! We must embrace the dynamic of a market that is going to be more dynamic in many ways than it was before. We will see a number of categories and players who are well-established, and we will also have many new players who are closer to their customers and the market. They will experiment, and some will fail, but others will succeed. The next decade will probably be the most exciting in luxury history, with the biggest changes but also a lot that remains constant. I’m sure that the top four to five brands will remain the same, but the top ten brands may not.
Abhay Gupta: We have recently seen the collaboration of LVMH with Richemont on the platform Aura. Do you believe that the future will be more collaborative, where traditional competitors will come together to benefit the consumer? Will there be more of these combined efforts using digital technologies in the future?
Armando Branchini: I think that there are some areas where fierce competitors on the market, like companies, can work together, or as I would put it, to compete better. Therefore, I consider cooperation to be a very important factor. At the beginning of Altagama’s initiative in 1990, our motto was “cooperate to better compete.” On this point, I am totally in agreement. I am positive.
Manoj Adlakha says that partnerships have probably been the best way to go. We joined Tata Cliq, India’s premier online luxury shopping destination, earlier this year. Tata Cliq Luxury is India’s leading online luxury shopping destination. We joined the platform earlier this year and are offering access to over 300 premium brands, as well as best-in-class products, experiences, and access. It was a very early case before the lockdown crises hit us. But it was well received by our customers. This is a partnership that will last a long time.
Abhay Gupta: Another trend that is growing in importance is the circular economy. Everyone is talking about this, and these topics have taken center stage at the Covid. The reporting of investments is still not structured. Amrita, do you have any comments on this?
Amrita Banta says that the impact of the pandemic has accelerated the sustainability trend. Although the returns on sustainable investments may not be as high, the trend is increasing. It was the first time that we noticed in our data that people in Asia, Europe, and the US are willing to pay a premium for eco-friendly brands, hotels, or brands with a cause.
Abhay Gupta: I have a question for Federica. You have been working with Depop to do a study on Gen Z. The results show that Gen Z is looking for second-hand luxury. They’re willing to consider buying now and paying later. And they’re looking at reusable luxury. So what’s the real trend? There’s a prediction that by 2030, 10 percent of revenue will come from spaces like renting a luxurious-buy now and paying later. Do you believe this will be a major contributor to luxury sales in the future?
Federica Levato: Yes, we think so because, let’s say, it’s starting from Gen Z. But second-hand is something that’s always existed in some categories, like a high-end watch or unique piece of jewelry. Positively, brands now realize that this could be a way to reach out to new customers or existing ones in new and different ways. This is a real trend, and we don’t think it’s just about the entry price or the new generation. These new business models can be seen from high to low prices. From unique products to aspirational ones, these products also demonstrate the magnitude of this business model. We have noticed that more brands are trying, let’s say, to overcome the third parties doing these business models. They also try to control them more. This new business model may also be a breakthrough for the industry.
Abhay Gupta Abhay: Amrita is coming. You’ve been researching in Southeast Asia, and now you are working in India. You have been doing some research in Southeast Asia, and you have also started working in India.
Amrita Banta: I would like to speak about the triple-A consumer, which is a term that defines young people and millennials around the world. This includes India. The study was called Triple-A because the consumers are Aspiring, Ambitious, and Affluent. This is a trend we’ve seen in many Asian economies, including India. We cover the Indian affluent consumer since it’s luxury. The March study had positive results. Unfortunately, India was put on lockdown in April. The study showed a positive outlook about the rebound in spending and the fact that Indian millennials love to travel. I talk a lot about Indian millennials because their number is comparable to China’s, around 300-400 million. The average age in Southeast Asia is 33. So, young consumers are very interested in luxury. The Indian consumer is not that different from other consumers because they often travel to study or work abroad. The first to embrace luxury foreign brands. Cartier, Tiffany, and other jewelry brands are struggling to break into India because Indians traditionally buy their jewelry from Indian brands. Usually, these young consumers are the ones who introduce these brands to their parents. This is an opportunity for luxury brands to focus on youth. The young Indian is not different from its counterparts in SE Asia. Ambitious, wants to travel and achieve.
Abhay Gupta says that we’ve talked about a lot of changes over the past decade, especially the last two. This is even though COVID has continued to rage. You know, according to reports, Gen Z’s attention span is down to just seven or eight seconds! Will the luxury industry be able to cope with this rate of change as fast as Gen Z blinks their eyelids?
Armando Branching: I absolutely believe it, and I think that, in general, physical will have a positive impact on luxury. As soon as international tourism flows start to recover, there will be no cannibalization. I think that people who have the chance to travel abroad will have the option of shopping locally, whether in Europe, the US, or anywhere else. The digital channel will allow them to buy even more. I’m very optimistic. I think that 2022 is going to be an amazing year for the world.
