The ground has shifted in the luxury market and it’s never going back to the way it was before. China, the once reliable growth engine for luxury brands, is all but tapped out. As
a result, personal luxury goods spending, the segment of the market including fashion, jewelry and watches, posted a mere 2% growth worldwide in 2014, according to Bain and Company, and it isn’t
predicted to do any better in 2015.
In the U.S., the world’s undisputed largest luxury market, the luxury brands have saturated the market with full-priced boutiques,
leaving little room to grow but through outlet stores. Likewise, Neiman Marcus and Saks are closing full-priced stores and turning their focus on their outlet stores instead. Sensing opportunity,
Bloomingdale’s is following suit, expanding its outlet stores.
Affluent customers are responding, since there is no reason to pay over-inflated retail prices when a trip
to a growing number of outlet malls, like the recently opened Desert Hills in Riverside, Calif., gives access to luxury brands like Alexander McQueen, Armani, Fendi, Gucci, Helmut Lang, Prada,
Versace, Valentino and Tods, all at a discount. It’s a race to the bottom, where luxury brands lose.
advertisement
advertisement
It’s no surprise that luxury brands can sell their stuff for less.
After all, they have spent years creating aspiration for their brands. But aspiration alone isn’t going to cut it with the affluent customers who can actually afford to pay full price.
What’s changed?
There are three undeniable trends disrupting today’s luxury market:
- New customers – Affluent consumer
demographics have shifted, as maturing Baby Boomers move out of the target age for luxury brands (35-54 years), but Millennials still haven’t moved in. Today’s Millennials on the road to
affluence are HENRYs (high-earners-not-rich-yet) with incomes from $100k-$249.9k, which puts them within the top 20% of U.S. households, but not yet at the ultra-affluent level of the top 2%, the
traditional target market for luxury brands. HENRYs are often called “aspirational,” but that is a mistake. Not all HENRYs aspire to a luxury lifestyle. Brands can’t keep marketing
with the same old aspirational ideas.
- New values – New customers bring new values into the market for luxury. Today there is an emerging
“Temperate Pragmatist” affluent segment: mostly older Boomer consumers who have already accumulated the material trappings of a luxury lifestyle and for whom austerity is the new normal.
Meanwhile, younger HENRYs are shunning the conspicuous consumption and status-seeking of previous generations in favor of experiences and luxury goods that reflect a new value proposition. Young
HENRYs put substance before style, reject exclusivity in favor of access, are democratic and distain elitism. In other words, they don’t buy the image that luxury brands are selling.
- New ways of shopping – Further disrupting the luxury market is a rapidly evolving shopping environment. When all things are equal, affluents will shop online. The
internet saves time, which is the ultimate luxury. But when they want to go shopping, they are abandoning malls and returning to “Main Street” and the special shopping experiences offered
by local independent retailers. In this new experience-driven shopping environment, it becomes less about what you sell, and more about how you sell it.
New customers with
new values and new ways of shopping call on luxury brands to market in a brand new style. Solutions won’t be found in simply changing tactics, like opening a discount outlet store, creating a
new social media initiative, hiring a younger celebrity spokesperson, redesigning the website or selling over the internet. It’s about completely reworking the strategy.
Luxury brands must fundamentally change how they position their brands, communicate with the target market and serve their customers. It all starts with putting the customer, their needs,
wants, desires and values in the center, and building out from there. Rather than making their products the focus of branding, they need to make the customer the subject of the new luxury stories they
tell. Luxury brands need less aspiration and more inspiration to succeed in today’s luxury market.