Luxury didn’t become a $380 billion global market overnight. It took decades of brands crafting their place as purveyors of high-quality materials, craftsmanship, design, and aspiration. Yet, in just a few short months, the Covid-19 pandemic dealt luxury a direct hit, and experts predict it could take years to recover. According to Boston Consulting Group, luxury brands may see nearly 30%, or anywhere from $85 and $120 billion, in sales evaporate in 2020. While recovery is dependent on numerous factors, BCG believes that the rebound will be gradual, and could take as long as two years for sales to return to pre-crisis levels.
As seen throughout the retail industry, the pandemic has forced brands to rethink their business strategies, mainly due to shifting consumer behavior and accelerated focus on online shopping and eCommerce. While older demographics have had to get more comfortable with online shopping, digital natives (Millennials and Generation Z) are, of course, already there.
Before the pandemic, the focus was on Millennials (~1978-1992), who currently account for 32% of the overall luxury market and will make up 50% by 2025. Gen Z (~1993-2001), meanwhile, will contribute around 8% this year, but are expected to overtake Millennials by 2030. With differing values and ideals than older digital natives, Gen Z is the group to watch, and the savviest luxury brands would do well to start courting this cohort now.
The Opportunity with Gen Z
Earlier this year, DeVries Global conducted a study of 1000 American teens and found that only 24% felt that luxury brands “understand” them. Gen Z’s collective buying power is at $150 billion and surging, and their attitudes and behaviors have already seeped into the mainstream. Still, many luxury brands have yet to capitalize on the opportunities.
Like Millennials, Gen Z was born digital, but for them, the novelty of sharing every aspect of their life on Snapchat or Instagram has already worn off. Their entire lifestyle is about social currency, socials scores, and recognition. The pressure they experience creates a desire to escape, and that presents an excellent opportunity for luxury brands, which trade in escapism as part of their perception.
Differentiated branded experiences are a key differentiator here. Once upon a time, luxury brands could offer flawed experiences and make up for them with the promise of quality, craftsmanship, and heritage. Now, those things are simply expected, and these consumers are a bit more fickle, understanding that the next innovation or latest technology will be replaced within a year.
It’s also important to rethink the traditional sales funnel. Digital platforms have made it difficult to distinguish between broadcasting wants and acting on them. For younger consumers who are increasingly seeking inspiration – a top-of-funnel phase – 70% are also making decisions to purchase while doing so. Gen Z spends 35 % more time in their purchase journey seeking inspiration and inspiring others than Gen X.
Gen Z Luxury: Where Exclusivity Gives Way to Inclusivity
Exclusivity has forever been a hallmark of luxury. Digital took that idea, upended it, and democratized it, handing the power of conversion to their online audiences. Together with Millennials, Gen Z will make up 61% of the luxury market by 2026, so luxury brands need to understand the mindset of this mobile-first, social-first generation.
Luxury brands need to be aware that:
- Culture is King: Gen Z and millennials need to be considered as audiences rather than just consumers. The American Gen Z population is the most racially diverse generation in history. Meanwhile, Chinese Gen Z, who is coming out of the crisis and is part of the world’s largest luxury-buying population, is moving away from Western luxury with the growing “Made in China” movement. Brands will need to embrace cross-cultural designs that represent authentic diversity.
- Social Currency Drives Price: When perception is everything, luxury brands must recognize that social credibility equals cultural credibility, and culture has been democratized. Brands will no longer be able to justify high price points at the expense of culturally savvy consumers who cannot afford them. Gen Z will gravitate toward brands that are aesthetically appealing, well-priced, ethical, and allow them to express their integrity.
- Digital Natives Require Digital Focus: The pandemic caused much of the luxury market to reprioritize digital, from better eCommerce experiences to showrooming, to online global Fashion Week events. Innovative use of technology appeals to Gen Z and Millennial-specific mindsets, and Augmented Reality (AR) and gaming can be powerful tools that create virtual experiences built around luxury products.