Luxury is no longer about buying and owning rare and beautiful things. Discerning consumers now seek out experiences that define luxury, that are customized and meaningful to them.
It’s a symptom of increasing customer sophistication, and also a search for deeper meaning beyond ownership. Our consumer understanding of what is luxury has now shifted, meaning luxury brands need to adapt and respond.
Customers themselves have also changed. A few decades ago, the luxury goods audience was more homogenous: these days, brands can’t even rely on homogeneity within a single market.
Many are no longer interested in covering themselves with designer labels and must-have accessories: the Burberry check, the Louis Vuitton monogram, the Birkin bag or Hermes scarf. Instead, consumers are finding other ways to mark out their status and wealth, not all of them tangible.
Consumers are more sophisticated, more educated about brands and more demanding of brand values. It’s harder to bracket them by age or geography and they approach brands across a range of channels.
The current state of the market
On the face of it, the luxury sector appears to be thriving. According to Boston Consulting Group, the industry for luxury goods and services is likely to expand at around 7% per year, slightly outpacing GDP growth in many territories.
But the industry is by no means static in terms of how this growth is allocated. Emerging markets account for a higher rate of growth, and experience-related growth is high. In China, spending on luxury experiences such as top-class travel has recently seen annual growth as high as 15%.
The simple fact is that many of our material needs are now met and there’s only so much ‘stuff’ a person can own. With wardrobes now full of designer clothes, the focus shifts to experiences.
Even the wealthy are short on space in crowded urban areas. There are environmental reasons to consume less, and anti-corruption crackdowns in China have reined in some of the more conspicuous consumption.
Growing consumer sophistication means that customers eventually move away from amassing tangible assets to flaunt their wealth and seek to demonstrate their taste in other ways, such as boasting about rare experiences they have enjoyed.
Consumers are moving from owning to experiencing luxury. In fact, more than half of luxury spending is now in the ‘experiential’ category.
This includes top-class dining experiences such as taster menus in Michelin-starred restaurants, exotic holidays such as safaris and cruises, spa visits and even fitness and wellbeing related services such as exclusive gym memberships. This kind of luxury spending is growing at a faster rate than things you can own, such as luxury watches and handbags.
How brands respond
The question remains how luxury brands respond to this emerging trend favoring experiences rather than the products they make. Do they let industry newcomers with experience-related expertise capture the attention of high net worth individuals? Alternately, can they build an experience around their own tangibles?
The answer is that the established luxury industry is seeking to build experience into their offering.
It’s establishing links with the hospitality industry, investing in hotels such as those owned by Versace, Armani and Ferragamo, so customers can live the brand vision in a totally immersive experience.
It’s also widening its scope to include fitness and lifestyle, making branded wearable tech by partnering with companies such as FitBit. Burberry has a café in London named after the brand’s original founder, Thomas, and Versace has gone into property development with a line of luxury flats in London filled with Versace label brand products.
In fact, some estate agents think this could be just the first in a big new trend towards luxury branded real estate.
A deeper connection
Adapting to the new customer view of luxury is not just about brands getting into new sectors. It’s also about luxury brands finding ways to connect with audiences at a deeper level.
In the luxury car industry, car makers are trying to find ways to enhance the ownership experience. Some are making the purchase itself more meaningful by enabling a customer to track the progress of a custom ordered vehicle through the creation process online via an exclusive link sent straight to their smartphone.
Rather than just selling the car, brands are finding ways to keep the customer engaged post-purchase.
This could be by offering membership of car clubs that bring perks such as tickets to sports events. This continues the cachet of ownership and keeps your customers talking about the brand and hopefully turn them into advocates.
Of course, the one thing that luxury brands don’t want to do is make these experiences too available. Exclusivity is the byword of the luxury branding approach, and too much availability cheapens the image. Brands respond to this in various ways.
After Louis Vuitton bags became the must-have item for Chinese women, the brand was seen as less exclusive because the bags were widely owned. Louis Vuitton responded by opening an invitation-only floor in its flagship Shanghai store where visitors could get their hair styled or have bags customized to their personal taste.
Open only to the super-wealthy, Louis Vuitton used this exclusivity to raise the brand’s value again by excluding all but the most elite.
Responding to Millennials
Brands also need to find ways to respond to a Millennial audience that places less value in consumerism. Often these younger consumers have less space to store possessions and they place greater value on experience than on ownership, making them a tricky demographic to engage with.
Some luxury brands are cautiously getting involved with the rental model, participating in shared ownership schemes where subscribers can rent rather than buy clothes.
The consumer can also sign up to receive sample sizes of high-end cosmetics and beauty products using subscription box services such as Cohorted.
Making the luxury part of the consumer’s everyday lifestyle is just one way to respond.
It’s all about creating a deeper and more lasting connection to the brand. Brands are seeking to enrich the sales process, turning every sale into an experience in its own right.
This has lasting implications for the state of the luxury industry, as it attempts to shift from creating and marketing products to creating a new theater of experience around the brands they represent.
It’s a disruptive situation that will bring new challenges, and some brands will inevitably fare better than others.