How Millennials Will Reshape the Luxury Market
The luxury market is expected to grow again in 2017, according to a recent study by Bain & Co. Luxury goods sales dropped modestly in 2016—from €251 billion (about $280 billion) in 2015 to €249 billion last year—but the first quarter of 2017 is already promising
Bain reports a 4% growth for the first quarter of this year, with a projected 2-4% growth for the year—or €254 billion to €259 billion ($284 billion to $289 billion).
Bain cites several factors for the stronger 2017 forecast, including more robust Chinese consumer spending (both at home and abroad) as well as increased tourism and consumer confidence in Europe. Another key growth factor for 2017 will help redefine the luxury market the next decade and beyond: The Millennial State of Mind.
By 2025, Bain projects that Millennials and Generation Z will account for 45% of the global personal luxury goods market. While that presents great opportunities for many brands, the challenges are also considerable because Millennials think and shop differently from previous generations.
"Since the 1950s, there was a clear and predominant definition what an 'aspirational life' looks like," explains Claudia D'Arpizio, a Milan-based partner at Bain & Co. and one of the study's lead authors. "Getting a degree from a leading institution, getting a highly regarded and rewarded career, getting married and having kids by a certain age, and eventually becoming wealthier than your family of origin. This was also reflected on consumption models, to the extent to which products were a way to testify the passage across life stages and achievements.
"For Millennials, this paradigm is substantially different, at least in most developed countries. They are the first generation to approach adult life in less favorable economic conditions than their parents. They have inherited a secular vision of the world: for example 'family' and 'religion' are no longer indispensable elements of one’s life, but they are possible choices among many. They are also part of the digital revolution, which leads to a different perception of 'time,' 'space' and 'possibilities.' Everything is possible, here and now."
What this signals for luxury brands is that consumption has a different meaning for Millennials. "Consuming products and brands is not just a way to say who you are but a way to define who you are," D'Arpizio notes. "This is why Millennials are more engaged than previous generations with self-expression."
Beyond that, Millennials typically value experiences over things, which translates to the shopping experience, whether it is online or in stores. For brands, this means that the shopping experience needs to become immersive so that customers can feel they are living the brand in the store. Otherwise, why leave home to shop?
The Millennial state of Mmind is also truly global, D'Arpizio reports. "Being highly digital and having disposable income to invest in education, travels and connectivity, Millennial luxury consumers are exposed to very similar stimuli and can participate in the same global conversations and experiences," she says. "Even in those countries that were historically less open to other cultures, Millennials have the opportunity to share experiences with people from all over the world. No culture is impermeable to the Millennial wave."
Nor are the generations below and above them. While Generation X emulated the way Baby Boomers consumed, the Millennial mindset has become cross-generational, which D'Arpizio says is "influencing the evolution of the whole luxury customer base."
But she is quick to point out that "all luxury brands have work do. Some are doing better than others, but those who are truly leading the Millennial way come from other industries or price segments." The brands that are well positioned to capture the Millennial market are "moving away from the old luxury habits: from celebrating their own heritage to celebrating consumers’ passions; from looking obsessively into their past to providing futuristic aesthetic visions; from 'shouting their name' to enabling consumers’ self-expression; from being fanatical of brand-purity to be open to collaborations and contamination."
And there is one other key factor to this Millennial mindset—the generation is more entrepreneurial than their parents. If existing brands don't fit their values or self-image, they create their own. "Fashion/luxury has always been a very fertile soil for creativity and entrepreneurship. And here 1 + 1 definitively makes 3," D'Arpizio says. "I believe we are potentially going through a transformation phase of the luxury industry as strong as the one seen over the '70s and the '80s when big luxury players established the rules of the game as we knew them up to now."
Michael Solomon, Forbes Staff
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