The luxury industry is at a tipping point. Both Euromonitor and Deloitte, global firms that study the luxury market, testify to it. They predict growth slowing in the global luxury market, with particular weakness in the Western Europe and North America.
Further, Bain & Company, in association with Fondazione Altagamma, reports the personal luxury goods segment contracted 1% from 2015-16. More troubling, Bain reports the Americas declined 3% and Europe by 1% in 2016.
Bain says, “It represents a new normal in which luxury companies no longer benefit from a favorable market and free-spending consumers.”
Why these formerly free-spending consumers have put the brakes on their spending is revealed in a survey among over 600 luxury industry executives we conducted with Luxury Daily. It’s because the very foundation of the luxury industry has shifted. Luxury doesn’t mean the same thing it used to. “The definition of luxury is so watered down, we need to completely redefine the category,” explained a luxury industry executive.
Today a gap is growing between what the customers believe luxury is and what the industry thinks it is. Luxury brands must bridge that gap, as this insider said, “There is an opportunity for luxury brands to re-examine their roots and re-think their offerings and messaging to reflect what the consumer is looking for.” Until they do, that gap is being filled by new disruptive competitors unbound by the traditions prevalent in the luxury industry, and which increasingly hamper established brands.
The solution: Luxury brands need to become relevant again. “With the consumer leading the way, the idea of the luxury market will evolve, and in the process, redefine the very definition of luxury itself,” as this insider expressed it.
Jim Blasingame, author of The Age of the Customer, has much to say about the “moment of relevance.” He explains that the rules of marketing have shifted because marketers no longer control the information about the products for sale through carefully-crafted advertising and other marketer-generated messages. That power has shifted to the consumer thanks to the internet. He writes:
“The age of the customer is upon us. After centuries of markets driven in large part by those who sell, today’s competitive environment is driven by the customer. This means marketers can’t go forward with their marketing plans without deep consumer insights about motivations, not just behavior or demographics.”
What’s made this new age of the customer so disruptive to luxury brands is that much of the allure of luxury has been its mystery and intrigue. But the internet has pulled back the curtain. Luxury brands can no longer hide behind the traditional myths of luxury.
Today the images that the luxury label conjures up have taken on a negative taint, now associated conspicuous consumption, indulgence, exclusivity, elitism, extravagance, status seeking and the wealthy 1%.
Luxury brands must reset by accepting that the consumers, not the brands, are now in control. Shifts in the demographics and mindset of today’s luxury consumers mean luxury brands need to abandon the old ideas of luxury and bring in new ideas aligned with today’s consumer mindset and value. In the LD/UM insiders’ survey, an insider shared:
“The change in how consumers define luxury and the new path to purchase is dramatically redefining the marketing strategy. Luxury brands must be very agile and innovative to gain the favors of the new luxury consumer.”
Luxury brands with their longstanding heritage and tradition face unique barriers to change, as this insider expressed, “Finding the right balance between innovation and tradition is a challenge for many brands.”
Confronting the need to balance innovation and tradition, many luxury brands opt for small ‘baby steps’ and modest tactical shifts, rather than the dramatic reinvention and innovation called for by the rapidly changing priorities and mindset of today’s luxury consumers.
Luxury is a mindset, not a brand or a price point. To established heritage brands’ frustration, the chances of getting traditional luxury back are nil. The very foundation of the market, its customers, have irreversibly changed. As a result, traditional luxury brands must adapt to the new style of luxury that their customers are hungry for.