MILAN, Italy — The luxury goods market is expected to return to growth this year, driven by domestic spending in China and tourism in Europe, according to the latest Bain & Co. Luxury Study, released on Monday in collaboration with the Fondazione Altagamma.
While luxury goods sales fell last year to €249 billion ($280 billion), from €251 billion in 2015, spending is expected to grow by 2-4 percent this year.
And over the next three years, Bain predicts that millennials and Gen-Z will boost the value of the luxury goods market to €290 billion ($324 billion), with the generations accounting for 45 percent of the market by 2025. This presents a challenge for many brands, however, as traditional business models do not accommodate Gen-Z and millennials' values and expectations.
In the past, a luxury brand’s goal was to create a superior product that encapsulated ideals of exclusivity and aspiration. Now, brands must consider the values of younger generations, for whom community, authenticity and transparency play an important part in how they purchase luxury goods.
“The key success factor will be the clear and differentiating strategies that [brands] can put in place,” says Federica Levato, co-author of the report. “It’s the first generation with radically different behaviours and attitudes towards all consumption and lifestyle to the generation before.”
The key success factor will be the clear and differentiating strategies that brands can put in place.
And millennial behaviour is changing how older generations spend their disposable income too. “This generation is strongly influencing how the other generations are approaching fashion and luxury consumption,” says Levato. “There is a different kind of attitude, transparency and experience that older generations are expecting from luxury because now they are exposed to different experiences and propositions that technology players like Amazon are offering.”
Indeed, online and mono-brand stores are set to become the two largest sales channels, according to the Bain report, putting pressure on brands with wholesale models to adapt fast. “Product for a customer now is taken for granted,” says Levato. “There is a whole other set of expectations like the online experience, the in-store experience, living the story of the brand.”
“It’s why the experience needs to be immersive,” she explains. “The customer wants to live the brand in the store. They need to give a good reason to the customer to come to the store. Otherwise, there are many other channels [that are] more convenient where the customer can buy the product.”
It’s a view shared by Geoff Cook, partner at branding studio Base Design. “It is more important than ever to have fewer physical stores that offer heightened experiences that can be shared. The stores should not ‘show and tell’ but bring like-minded people together,” he says.
“Millennials are more focused on experiences which inherently incorporate what they value: sharing time together, transparency or realness, and perhaps learning something or doing good along the way,” Cook explains. “These values also extend to product, in so much that there is a personal connection to it that becomes an extension of themselves or a conversation piece”
The brands that are best placed for success within the millennial economy are those with a strong and distinct point of view, says Rebecca Robins, co-author of the book “Meta-Luxury” and global director at branding agency Interbrand. “That point of view needs to run deep inside the business in order to resonate and show up across the entire brand experience, she says, citing Gucci and Dior as positive examples.
“Great brands grow from within and from strong cultures.”