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In an increasingly competitive market, luxury businesses are reinventing and re-imagining themselves, and seeking innovative new ways to meet consumer demand, connect with customers, and generate new revenue opportunities.
Looking ahead, we have identified four key trends and opportunities for luxury businesses to explore:
1. Brands going digital for better customer experience
Driven by the pandemic, online luxury sales grew by 50% in 2020 even as overall revenues in the sector declined by 23% on average. Companies that were innovative in their approach to digital during the pandemic performed particularly well. Burberry saw an opportunity its digital platform with the immersive Bags World launch. That one event, live-streamed on Tmall, was watched by almost 1.4 million viewers and grew engagement on Instagram and WeChat by double digits.
While online pure-play luxury goods retailers have seen strong growth over the last few years, many luxury businesses with physical retail stores are looking to understand how the shift towards digital channels and technology can improve both the in-store and online customer experiences. A key consideration is the importance of human interaction as part of the retail experience—whether that’s as part of the assisted selling journey in store or integrated into the digital journey.
Luxury brands can make use of automation and artificial intelligence to augment the experience and increase the opportunity for customers to interact with a member of the staff, providing a seamless convergence of technology with the selling experience. For example, Threads is a start-up that offers a personalised luxury shopping experience entirely over social media and text, delivering a tailored service to meet each individual client’s needs.
2. Non-Fungible Tokens
NFTs are digital versions of unique assets or collectibles stored on the blockchain. If a Bitcoin is akin to a hundred-dollar bill, an NFT is more like an autographed pair of Air Jordans: unique, collectible and tradeable—except an NFT is intangible. In our increasingly disposable world, NFTs are also enduring—immutable and living forever on the Blockchain.
Luxury has always been about self-expression, showcasing, and social signals. NFTs bring these use cases into the virtual world, disconnected from physical constraints. They offer a compelling opportunity for companies to excite and engage customers in new ways.
We see a number of themes around which NFTs can create value for luxury brands and their customers. Clients we speak to are pursuing four sources of value: the ability to unlock new customer segments; engage customers in new and innovative ways; develop entirely new revenue streams; and reinforce brand equity.
But to deliver against these objectives, brands will need to look beyond the hype and pinpoint the sustainable sources of value they are creating for customers. Looking at NFT issuance across sectors, we see three sources of value resonating with consumers:
We believe luxury brands can deliver the most sustainable value by focusing on utility—which can be some mix of:
This space is new and moving fast. Brands that succeed will make moves into the metaverse. They will need to start small to move fast, test and learn, and engage the NFT community to better understand their motivations and what will resonate.
3. Rental and re-commerce
The luxury second-hand market is growing four times faster than primary luxury markets, at 12% per year versus 3%.1 To encourage the circular economy, legacy brands are embracing resellers.
Affluent millennial and Generation Z consumers are purchasing in both primary and secondary markets, partly driven by a belief that it’s more sustainable. Thredup found that 25% of buyers bought pre-owned items due to environmental concerns, while 35% of millennials did so, and 32% of consumers said they were more likely to view a brand as high quality if it sold both second-hand and new clothes.2
Some luxury retailers may express doubts about the resale market, with concerns around cannibalising sales of new products, diluting the exclusivity of the brand, and maintaining product authenticity. However, the luxury car market offers an interesting precedent—with a high-quality, brand-authorised resale model. Car manufacturers partner with authorised dealers to sell second-hand vehicles, fostering long-term brand equity and increasing the resale value of the cars.
By taking proactive control of the resale market, there’s an opportunity to use “re-commence” to promote scarcity and exclusivity, appealing to younger luxury customers. Establishing luxury products as a secure longer-term investment is also particularly appealing for HENRYs (High Earners, Not Rich Yet), for whom value for money remains an important element of the purchasing decision. A great example of this is that ownership of a Birkin bag can now be seen as a strategic investment decision, with a pre-owned Hermes Birkin bag generating an annual return of ~14%, according to Baghunter.
4. Hyper Personalisation
The sales experience is a key part of the luxury customer journey, and we are increasingly seeing brands look to offer something that is unique and memorable.
At the product level, this is being seen through a rise in hyper-personalisation—which ranges from the more conventional approach such as the made-to-order range from Jimmy Choo through to businesses that are looking to embed customers’ DNA into their products, making it truly unique. We are particularly seeing this within the wellness sector, with products such as facial serums, custom-prepared meals, and vitamins. A recent study found that consumers are willing to pay a price premium for hyper-personalised products compared with a mass-produced equivalent,3 regardless of the ambiguity around whether hyper-personalised products are truly more beneficial than their mass-produced equivalents.
Although the pandemic has clearly had a significant impact, we are also predicting a growth in the purchase of luxury experiences, rather than just physical products. LVMH has embraced this experience-led strategy for their brands, shifting from being exclusively retail to being more integrated with hospitality via the acquisitions of Belmond, Cheval Blanc Maisons and Bvlgari hotels. We expect to see a lot more of this across categories and markets—with the most successful brands embracing the idea that every product needs to tell a story.
1Luxury resale: A second-hand strategy for brands, Luxe Digital, 2019
22021 resale report, Thredup, 2021
3Mark S., Rosenbaum, Germán Contreras Ramirez, Jeffrey Campbell, and Philipp Klaus, “The product is me: Hyper-personalized consumer goods as unconventional luxury,” Journal of Business Research 129 (May 2021): 446–454.
Sandeep is a UK Partner who specialises in the Consumer Products industry and has extensive experience leading cross-border transactions for both corporate and private equity investors in India, Africa, Europe, Asia and the United States. Sandeep also has extensive experience in advising clients on growth market strategy and M&A execution.
Becky Galea is a Retail and Consumer strategist at Monitor Deloitte, with a background in helping traditional corporates and start-ups to radically re-think the way they operate. Becky has worked with some of the UK's best known brands, and specialises in taking a customer and employee-centric approach towards designing and delivering industry leading customer experiences and services.