The global luxury market has grown 21 per cent from 2021, says a recent report by Bain & Co. and Altagamma. Despite worsening economic conditions, high inflation and rising costs of living, coupled with ongoing Covid restrictions, some 95 per cent luxury brands have clocked in positive growth in 2022.
Chinese consumers will represent 40 per cent of all luxury consumers by 2030. But as China remains challenged due to Covid restrictions, other parts of the world have begun to shine. The US luxury market is still leading in size while Europe has managed to surpass pre-pandemic levels thanks to an uptick in local demand and overseas shoppers. Newer luxury markets have emerged, too, including Southeast Asia, although it lacks the infrastructure to facilitate expansion locally. In South Asia, India is a country to keep tabs on, with a luxury market forecasted to swell 3.5 times today’s size by 2030.
Gen Y, Gen Z key growth drivers
Gen Y and Gen Z accounted for the entire growth of the global luxury market in 2022. In coming years, Gen Z and Gen Alpha spending will grow three times faster than other generations until 2030, when they will make up a whopping one-third of the market.The impact for brands of these young consumers entering the market will be substantial. Brands will be asked to adapt their value proposition, where purpose and expanded brand meaning have a central role in order to remain relevant.
Old loyalty programs are now being innovated with social incentive schemes. These flip traditional VIP schemes on their head, incentivizing brand engagement and advocacy pre-purchase rather than post-purchaser, attractive user experience with points, rewards for each interaction with a brand to be redeemed against exclusive content and discounts.
Brands perform using current dynamics
Not only does the current luxury industry have a larger consumer base than it did during the 2009 financial crisis, brands have done a better job at developing and balancing business across regions and generations.
Furthermore, brands have been able to nurture their top, ultra high net worth customers, traditionally less impacted by economic downturns. They constitute a safer bucket of sales for brands to rely on, especially during periods of economic pressure.
In the third quarter, Kering’s sales in Western Europe jumped 74 per cent year-on-year, while LVMH and Hermès posted double-digit growth thanks to strong performances in Europe and the US. Aditya Birla Fashion and Retail along with Galeries Lafayette will bring luxury department stores to New Delhi and Mumbai by 2025.