By David Schlocker
New indicators over the past month or so have been showing that luxury markets are beginning to recover as the affluent are returning to their familiar spending habits. As the luxury market rebounds, however, will it be the same as it was before the worldwide economic crisis? We have been trying to get a head start on these market changes by encouraging all of our clients to take a more active roll in not only their websites but also things such as social networking, online marketing, and new online media.
The “Annual Worldwide Market Study” was just released by Bain & Company, and while it forecasts that luxury markets will continue to have a rough road ahead for the rest of 2009, they will begin to increase by a small 1% margin in 2010. The study also makes predictions which show that the luxury market will change in the coming decade. Bain concluded their presentation of their study with 10 global luxury trends that they foresee taking place in the coming decade, and starting in 2010. While these are just predictions, many of them hit on a common theme that we have seen firsthand with our clients and the markets they represent.
1. Bain – Younger consumers and new groups such as working women will become the dominant segments as baby boomers age and retire.
DRS Response – Marketing and catering to younger segments is a must. As the baby boomers retire and decrease in their numbers in the next decade, new generations will take their place as the luxury consumer of the future. A key point is to not overlook by any marketer – we must learn to communicate and reach this younger segment utilizing the methods they consider relevant – today.
2. Bain – Aspiration will evolve into new relationships with brands as consumers look to fill different emotional needs with their luxury purchasing.
DRS Response – New generations of “new” consumers will have new and different emotions within their purchasing habits.
3. Bain – Retail networks and product offerings will see greater and greater customization by country and even by city-one size fits all has stopped working.
DRS Response – Many if not all of our clients have caught on to this growing trend where the need to have the ability to customize luxury products is an essential part of the purchase. Not only do these customizations provide a more personalized product for the consumer, but it also gives the consumer a closer connection to the product as they have the ability to interact with the creation of the product directly, hitting on a new emotional bond with the luxury products similar to the IKEA effect.
4. Bain – Growth in China, South Asia and Central Asia may cause Asia to overtake Europe and the Americas as the largest global luxury market region.
DRS Response – This is a fairly obvious prediction as the balance of wealth has shifted over the last decade and with globalization, the availability of information, accessibility, logistics and access to more and more luxury goods from outside of Asia does not become an issue.
5. Bain – Asia`s diversity (more than 15 countries, more than 300 cities, and more than 50 million consumers) will stretch luxury brands` marketing and supply chain capabilities.
DRS Response – With new markets will come new challenges in serving these markets with the efficiency that has taken years to prefect in other regions. In addition, different cultures have different cultural needs, social faux pas’, and different ways of doing business. The luxury companies that are able to diversify to these markets most efficiently will be the ones that come out well ahead in these new, diverse countries.
6. Bain – Market pressures in a turbulent recovery will drive a second wave of luxury consolidation.
DRS Response – Consumers who are still willing to spend during these times will be looking for additional reasons to purchase and feel good about it. Hot points such as sustainability or environmental issues, authentic and original products, truly crafted or technical designed production, quality and durability, all with more of a story behind them will be important for luxury brands to bring forward. These consumers are also demanding more of an “experience” and automatically will expect a higher level of service, appreciation and relationship with their sales transaction (both online and through traditional resellers).
7. Bain – New luxury players will emerge as tastes and consumers change, including brands based in emerging market companies.
DRS Response – Your mother & father’s luxury products will no longer be applicable to the luxury consumers of tomorrow. New luxury brands that see the new trends and are able to diversify will gain new and existing market share.
8. Bain – The luxury shopping experience will transform as direct-owned stores, department stores and outlets look for ways to draw in the decade`s new luxury shoppers.
DRS Response – As more products and information become readily accessible retailers will need to market their business in a way to differentiate themselves from others. Probably the first areas to focus on will be on consumer’s experiences in doing business with the store as a whole. This includes items so often overlooked: experience and educated sales team, history of business, the process in doing business with a store, building personal relationships with the consumer, a compelling reason for a consumer to feel good about their purchase and where they have chosen to spend their money.
9. Bain – Online retail is still in its infancy, but quickly becoming more than a niche.
DRS Response – Taking luxury products online is a step that every brand will need to tackle sooner or later. The ones that conquer this task first, and exceptionally through expressing the emotional bonds that a luxury brand through online mediums will no doubt become the players in the big picture of luxury goods. The challenge we all will face is that a brand does not loose it’s value due to pricing and discounting issues normally associated with online sales.
10. Bain – Retailers will treat new shoppers as “in play,” and offer competitive products to those produced by typical luxury brands.
DRS Response – Smart retailers will realize that the definition of “luxury” means different things to the world of new consumers and in order to capture their attention (their dollars) they must offer products that clearly define themselves from each other – while at the same time be able to offer products that bring meaning and create an emotional connection with today’s consumers’ perception of what truly is luxury. The result will be a trend towards more options and choices. Retailers and Manufacturers – be ready to provide enough information and content online about your products so that these new shoppers can confidently and comfortably make their purchasing decisions.
The world of luxury has taken a hit during the past year, there’s no denying that, but the luxury companies that come out on the other end with a clear definition of what the consumer of the future wants will no doubt be wildly successful. By investing in the future of your luxury brand today, your future consumers will not only be aware of your brand today, but have existing emotional ties to your luxury brand tomorrow.