The Future of Luxury
Cultural developments that will influence the luxury industry in the coming years and how brands should act to succeed.
24 Aug 2021
The Future of Luxury
Which cultural trends will form the luxury market in the futu-re and which challenges will luxury brands presumably face in the coming years? To answer these questions we analysed the online conver-sations around luxury – or more specific – personal luxury goods, such as watches, accessories and also luxury cars. With the help of the analytics tool Q™ from sparks & honey we collected and clustered over 25,000 online conversati-ons over of the last years on Twitter, Reddit in online artic-les and academic papers. We detected and clustered topics and so called “elements of culture” that define the conver-sation and development within the luxury market.
What Awaits the Luxury Market in the Coming Years.
As we can see, “aspiration” is the biggest theme in the cultural zeit-geist around luxury. At the same time it is the most obvious one as luxury consumption per se is always driven by the aspiration to rise and show wealth and status. Looking at the future development and combining it with other elements that play a role within luxury, it becomes quite cle-ar that “aspiration” is a somewhat more stable element that might not change much in the course of the next two years. But there are ele-ments that do. These are the ones that we will have a closer look at as these will most likely help luxury brands to set the right course for the next years.
Looking at all elements, we can see that some of them form bigger clus-ters of topics that define the conversations and behavior around luxu-ry brands. These clusters can oppose or complement each other and thus define the fields of tension the luxury industry is acting in. There are elements that emphasize the feeling of community and togetherness with likeminded people (“mash ups”, “flattening”, “crowd economy” and “hyperculture”) as well as a cluster indicating the wish for individuality and self-staging (“aspiration”, “camera culture”). Some elements show the rising importance for brands to act within global communities and cultural norms. This brings aspects like the democratization of luxury goods, new markets and new customer bases to the table that funda-mentally change the way luxury brands have to behave in order to acqui-re new customers in the future.
Fueled by the global COVID-19 pandemic some tendencies even acce-lerated during the last months. The importance of “micro tribes” – of belonging to a group of people that think like I do – grows further whe-reas the former strong aspect of “globals” – focussing on globalization, people traveling around the world – completely vanished as people stopped traveling the world.
Trends and Elements Within the Cultural Environment of the Luxury Industry
As prediction in times like this always feels a bit unstable, we will focus on trends and elements that represent fundamental values and developments within the cultural environment and thus will have a lasting impact on the luxury industry during but also after COVID-19.
On the following pages we will show what these cultural tendencies mean for the luxury sector and what luxury brands should do to react to the trends and benefit from them.
Thesis: Not the Product, but the Experience Becomes the Main Differentiator for Luxury Brands.
People traveling the world, online channels connecting us all over the globe, global supply chains, global markets, global competition – glo-balization is everywhere. So it’s of no surprise that “Globals” is an ele-ment of culture that’s predicted to become even more important in the following years. But it might also be one of the cultural elements that will be hit hard by the effects of the global pandemic.
Global traveling was something that fueled the luxury market in the past. But worldwide travel bans and social distancing due to the pandemic are causing a sharp drop in travel retail. Moreover during the pandemic there has been a return to local brands and production. And at the same time the pandemic accelerated digitalization – even for the luxury market. Even if global traveling might come back sometime, on-line will have a bigger share of the luxury market, since the customers got used to browsing, experiencing and even ordering online. Therefore it’s important for luxury brands to make their brand experience tangible online – around the globe. Live streamed fashion shows and experiential e-commerce platforms are only the beginning. The Gucci sneaker garage, where users can create their own virtual sneakers and share them in social media is a good example of how the physical and virtual world are becoming more and more one. And since the pandemic also fostered a return to the local with consumers embracing homegrown brands it’s more important then ever for global brands to meet the needs of their customers locally with specialized products and ex-periences to strengthen brand loyalty.
What’s in It: The Chance to Conquer New Markets.
The pandemic doesn’t mark the end of the physical store, or global luxury travelling. Albeit only those luxury brands will survive in the longrun that understand the requirements of the upcoming experience economy. Hence, luxury brands have to offer an exclusive omnichannel experience for the customers, regardless of where the customer is on the customer journey or in which country.
All this presupposes, however, that luxury brands stop focusing solelyon their brand, and core business, and start to develop the brand ex-perience based on the customer‘s demands, pains, and gains. As a re-sult luxury brands could gain market shares, and expand into new mar-kets by offering additional services, and products based on customer’s needs.
Thesis: Does Flattening Mark the End of Luxury, or Just the Democratization of Luxury?
The world of luxury was an ultra-exclusive one for a long time and that exclusivity was a defining factor for luxury goods in the past. But with the rise of digital and social media it became more and more expe-rienceable for the masses – like for example auto-motive brands, for which social media is a great way to democratize the luxury experience and stay relevant in modern culture. But it’s not only the possibility of experiencing luxury online that softens the former exclusivity. It’s also an expanding target group that turns the previous image of the classic luxury buyer upside down.
Luxury brands are more and more opening up to the public. Like Bal-main who – in the effort of democratizing fashion – not only teamed up with H&M for a capsule collection but also organized music shows around its spring/summer 2020 menswear runway show in Paris to make the event experienceable for the public. Besides that luxury or the so-called “New Luxury” is a trend that has been seen for a few ye-ars. Consumers are looking for the status associated with luxury with-out experiencing the high prices. That could be entrance level luxury goods, things like “Uber for private jets” or 2nd hand luxury goods, a market that rose to €26 billion in 2019. Accompanied by this trend we see a shift in the buyer structure with more younger consumers ent-ering the market. Another factor fueling the democratization of luxury – even if coming from a completely different direction – is the rise of a new buyer group in China – the young self-made female billionaires – in the past responsible for 40% of the luxury car purchases in the chinese market.
What’s in It: Huge Potential for Expanding the Market Position.
What once was an exclusive market with an exclusive elite buyers group is and will become more and more of a diverse and open world. For some luxury brands this might sound like the end of the world, but for the forward-looking luxury brands it offers huge potential to leapfrog the top dogs in the business, or expand market leadership.
For these luxury brands, the trend towards democratization and homo-genization means that they’ll open up towards new target groups as well as new business models and sales channels.
Hypothesis: With Unexpected Fusions Luxury Brands Choose the Fastest Path to Brand Dilution.
“Hyperculture”, in the way it’s defined here, means the appropriation of cultures creating cultural hybrids. These cultural hybrids can also be seen in the luxury sector.
Louis Vuitton x Supreme or Fendi x Fila: Collaborations between luxurybrands and well known streetwear brands are just one example whe-re two worlds are teaming up. According to a Matter of Form report “67% of Gen Z and 60% of millennial luxury purchases have bought a designer collaboration piece or special edition, and they are particularly popular among Chinese consumers”6. Keeping in mind that millennials could make up to 45% of the market in 2025 and Gen Y customers are called “the new frontier of tomorrow’s luxury market”7 these collabora-tions make absolute sense. Over the last years luxury brands are also starting to embrace the gamer community. Like Louis Vuitton’s League of Legends capsule collection or Gucci’s apparel for virtual avatars. For the younger luxury consumers it’s important that luxury brands ref-lect their values and underline their individuality. And since the young generations will make up the majority of future luxury consumers it’s important for luxury brands to become part of their culture and embrace cultural mainstream elements of the younger target groups.
What’s in It: A Chance for Progressive Collaborations.
To stay relevant in the future it’s important for luxury brands to embra-ce cultural mainstream elements of the younger target groups, and to not shy away from progressive collaborations and to open up for experiments.
Even though, these unexpected fusions might look like low hanging fruits, and obviously luxury brands might be tempted to tap into new upselling potentials, and approaching new target groups, these brand collaborations could lead to overstretching the brand’s core.
Since these unexpected fusions should be part of the overarching brand strategy, luxury brands should decide strategically which part-ners best fit the brand and goals, as the dilution of the brand might end in losing their unique brand heritage, and their strategic edge.
Hypothesis: Luxury Brands Should Use Their Second Chance and Take Back Their Data Sovereignty.
The feeling of belonging to a group of chosen people who share the affinity for and specific knowledge of luxury products is a huge driver when it comes to brand love and loyalty. Nowadays technical possi-bilities even offer to connect with likeminded people from all over the world. The d iversification of a society into more sectioned special inte-rest groups can be seen on any level from politics to online communities.
“Globally, 77% of luxury buyers agree that they would buy a product or service simply for the experience of being part of the community built around it”. In the luxury sector specifically, the changing digital land-scape has left its marks. Brands that formerly lived from their exclusivity by status or demographics are now confronted with people who want to connect with brands that share their exclusivity in mindset, interest or education. This makes it imperative to find a way to create vivid communities by giving people the opportunity to connect on a regular basis. AMG for example is offering their customers a digital community called "Private Lounge" and thus unites the very specific target group of AMG owners in their passionfor the brand, giving them access to exclusive content and insights.This shows the fragmentation of today’s communicational target groups and the need to create fitting conversation offers to really engage and tie a strong connection between customers and brand.
What’s in It: The Chance to Build Real Communities.
In order to grow beyond the classical luxury buyership, luxury brands have to broaden up to sub groups. Here, luxury brands could cater to frin-ge groups with specific interests and actively make them a part of the community.
These communities have to be fostered and kept alive with real com-mitment and engaging conversation drivers. It’s not sufficient, to just in-vent a nice #brandfamily hashtag on some random social network and hope for the best. Of course, the common social networks aren’t dead, and are still part of the daily customers’ journeys, but mostly won’t help in building real brand communities. While the big social networks are based on data to fuel their advertising flying wheel, owned communi-ties offer luxury brands the chance to win back their data sovereignty.
Based on smart data, luxury brands get a second chance to know their customers by heart and use this knowledge to nurture the community with exclusive experiences and turn these fans into brand ambassa-dors over time.
Hypothesis: It’s About Time for Luxury Brands to Enter the Fast Lane of Culturally Driven Product Design.
When talking about tensions within the luxury market field, one cannot ignore two very opposite poles: Maximalism and Minimalism. Maximalism has risen to more and more heights during the last years as a veritable alternative draft to a minimal lifestyle. The principle of maximalism is embracing the idea of excess, of showing off your personality in all colorful, conspicuous and extreme ways. This can incorporate mixing and matching of styles, mashups in any form and striving for unique statement pieces that make you feel glamorous and special. It is about expressing your individuality.
As a study by Bain & company shows, consumers “aren’t conforming to trends as they once did but instead picking freely from what’s available to express their own styles”. Especially in Asian markets, the rising middle class is aiming at showing the new wealth as opulent as possible. Luxury brands need to deliver a bold and eye-catching design approach if they want to appeal to these target audiences. One way to do this is to deliver surprising and striking cooperations with designers and brands that immediately catch one‘s eye and dare to stand out – but, and that is the hard part, without alienating other clientele that is drawn to understated, classic luxury design.
What’s in It: Stay Ahead of the Competition With Agile Innovative Processes.
As consumers swapped roles and turned into prosumers, it’s inevitable for luxury brands to keep up to speed with this generation that puts individuality above everything.
Luxury brands have to abolish the old-fashioned, seasonal planning, but implement agile innovative processes and methods to stay at eyelevel with their customers.
That means, it’ll get crucial to monitor cultu-ral trends on a weekly basis, pick up the most relevant trends and drop new collections within weeks.
Hypothesis: Luxury Enters Everyday Life.
The Minimalism lifestyle aims at owning less things but with a higher and more distinctive quality. People who declutter their apartments with tips from Marie Kondo are adopting a way of living that strives to sim-plify and downsize whilst at the same time focus on the quality of the goods one owns.
When it comes to owning luxury items, a minimal mindset is led by conscious consumption resulting rather in single purchases of chosen products. Guiding aspects for a purchase can be a brand's heritage, the exceptional product quality and a possible purpose that exceeds the simple functional facts of an item. Especially looking at younger target groups the desire for supporting brands that show social responsibility and that use their name and money to take action is evident.
What’s in It: The Chance to Lower the Barrier for Owning Luxury Items.
As soon as we’re leaving the exclusive luxury sector, a brand has to ex-plain the added value and quality of an item in everyday life – and why paying a higher price is actually justified and the product is worth the effort.
The more luxury brands enter everyday life, the more important it gets to tell the right story about a product. Long story short: Luxury brands have to have a strong purpose and brand vision, distinct brand values, and a flexible brand personality.
It opens up possibilities for existing luxury brands to step into these new markets and lower the barrier for owning a first luxury brand item. At the same time, room arises for new luxury brands to emerge and bring the luxury feel to the day-to-day life.
Hypothesis No. 1: Not the product, but the experience becomes the main differentiator forluxury brands.
Hypothesis No. 3: With unexpected fusions luxury brands choose the fastest path to brand dilution.
Hypothesis No. 5: It’s about time for luxury brands to enter the fast lane of culturally driven product design.
Although we’ve taken just a brief glimpse at consumer-driven cultural trends with this white paper, it clearly shows the business relevance of these developments.
Relying solely on classic target group-based approaches is insufficient for luxury and premium brands if they want to keep their valuable brand position. This business environment is changing fast! But what can help these brands create meaningful and lasting connections to win loyalty?
With the TLGG Strategic Brand Innovation approach, we identify the most relevant cultural developments and trends and derive not only applications for your brand communication, but also for your business model.
Please feel free to get in touch for more details!
Sebastian Konz Director Strategy Director