After a year in which the only increase in consumption was recorded in the upper part of the luxury consumer pyramid, whose market share doubled compared to the previous year, the global market is gradually recovering and is estimated to return to pre-pandemic levels by 2022, according to the “True-Luxury Global Consumer Insight”, a report by Boston Consulting Group and Altagamma.
Their conclusions show that the push comes above all from US consumers, whose luxury purchases have restarted more quickly than expected, thanks to the strong government support, and from Chinese consumers, who confirm the trend towards the repatriation of purchases, started during COVID-19.
This recovery is due to a “rebound effect”: the desire for luxury increases in post-pandemic. In this sense, the report shows that spending expectations of high-end consumers in the 12 months are generally positive: the consumers’ feeling is slightly opposite for personal and experiential luxury, with the first one expected to benefit from domestic consumption, and experiential luxury forecasted to be increasingly supported by abroad spending.
Millennials and Gen. Z are the other growth drivers and will account for 60% of total consumers by 2025. Among the major trends in consolidation: the increasing virtualization of luxury (new digital tools for engaging the consumer), the polarization of values between Western and Eastern styles, an omnichannel-centered distribution system and a growing attention towards the values of brands, in terms of environmental sustainability and inclusiveness.
“The report shows positive signs for 2021, beyond expectations. China and especially the US are driving growth with more than a third of international consumers planning to increase spending on high-end goods and experiences, including travel. The sector has shown solidity and quickly captured the new socio-cultural trends. Sustainability is certainly one of these, but the strong virtualization of the luxury experience is also striking, as highlighted by the success of sales in livestreaming and by gaming, a sector that reached the value of $178 billion in 2020”, says Matteo Lunelli, President of Altagamma.
If Europeans are cautious about domestic spending and more pessimistic about foreign spending for the next 12 months, US and Chinese consumers stand out for their optimism, placing themselves as potential growth drivers of the personal luxury market in the near future.
“Americans are back” comments Sarah Willersdorf, Managing Director and Partner at Boston Consulting Group. In this sense, she points out that US consumers are bullish on both domestic and abroad luxury consumption expectations, showing Americans are poised to regain their importance in the Global Luxury market. Such renewed optimism is expected to produce a share increase versus pre-covid forecasts of +2-3 p.p., estimated at 19-21% by 2025.
“Consumers from China are also planning to increase their spend but also continuing to repatriate it, with an acceleration here as well versus pre-pandemic estimates in terms of share, amounting to +3-4 p.p., to reach 43-45% in 2025. Brands will need to take a strategic stance towards these two consumers clusters that, besides diverging tastes in terms of style, entail different implications in terms of marketing and distribution footprint investments”, she adds.
The report highlights that virtualization of luxury is an increasingly defined reality that can pose great opportunity of additional revenues stream for the brands. “Particularly gaming: amongst the 39% of consumers who have claimed to be aware of the existence of virtual online games that involve a luxury brand, 55% of them state to have bought in-game items. Amongst them, 86% state to have then purchased the corresponding physical version”, it says.
Other trends that stand out are the boost of social and live commerce (i.e. livestreaming), with the interactions between customers and brands becoming increasingly direct and digitally focused; and clienteling 2.0, the importance of the “human” touch. “Compared to last year, a personalized “touch” remains key for consumers when reached across all digital and physical avenues by a brand, confirming the need for brands to create a more 1-1 relationship with the customer across all touchpoints”, concludes the report.
For Funds Society, Madrid