Luxury brands fight for millennial wallets

Digitally nimble, millennial-savvy brands will win in the business of luxury


Back in the heady years between 2009 and 2015, a period that the consultants at Bain & Company have somewhat insensitively called “Chinese Bulimia”, the luxury-goods industry grew at an average annual rate of 9%. Luxury fashion brands went on a store-opening spree, starting hundreds of new outlets in China, as the world’s fastest-growing consumer market developed a taste for the finer­—and flashier—things in life.

But since 2015 the industry’s growth has flattened. After the government stigmatised bling-flaunting officials and cracked down on corporate gifts, the Chinese market faltered. The luxury sector has been waiting ever since for “a new China”. However, with Brazil in turmoil, Russia isolated and an over-regulated Indian market still lacking an adequate retail infrastructure, it is clear there will be no new China any time soon—or perhaps ever.

In 2018 savvy brands will nevertheless find an opportunity for growth thanks to the rise of digital technology and social media. Luxury and fashion executives are obsessed with selling to millennials (born between the early 1980s and mid-1990s) and Gen-Zs (born after the mid-1990s). These consumers, Bain reckons, will account for 45% of luxury-market consumption by 2025. The industry’s future depends on them.

Values for money

The brands that have recognised this opportunity are already soaring. Gucci was jolted out of a long hibernation by a dynamic chief executive, Marco Bizzarri. Mr Bizzarri appointed a bold new designer, Alessandro Michele, from behind the scenes rather than picking an established star. The company’s revenues rose by 43% in the first half of 2017. According to François-Henri Pinault, chairman of Gucci’s parent company, Kering, more than half of Gucci’s customers are millennials. 

Mr Bizzarri delivered clever merchandising, reined in discounting and seized the digital opportunity with quirky advertising campaigns that resonated online with these all-important new consumers. Meanwhile, brands such as Prada, which was late to the digital game, are flailing. Some French luxury houses, including Chanel and Céline, still shun e-commerce altogether.

Digital is only half the story. Millennial consumers also have different values. Opinion surveys suggest they are still drawn to luxury—less than one in five of a (mainly female) sample group of millennials polled in America think that “luxury brands are a waste of money”. But rather than stuff, they want experiences; authenticity trumps extravagance; and instead of hierarchy they value community.

This means that luxury brands will not only need to improve their digital fluency, they will also have to break out of their familiar formula of luxury as a distant aspiration, and instead focus on luxury as an experience—as age-old craftsmanship rooted in the creativity that is the industry’s lifeblood. Millennials want to participate in the luxury industry, not just consume its products.

This holds true in China, too. The country is home to more than 400m millennials. They are more educated about luxury, more individualistic in style and more values-driven than their parents, who gorged on products with posh logos and flashy Swiss watches. They also have more disposable income and reject a one-size-fits-all approach to their own consumption. In a market increasingly characterised by winners and losers, understanding and reaching these new consumers will make or break brands in 2018. 

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