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Shaping the future of the luxury industry

15 August 2018

By Sze Man Young    Translated by Elmo Wong

Emotional context plays a significant role in a luxury brand’s appeal among millennials

Luxury brands are increasingly embracing social media as a channel for customer engagement


The global luxury goods industry remains on solid footing amid macroeconomic uncertainties. To sustain growth though, luxury industry players need to identify the right business strategies to face new challenges.

The luxury goods industry has evolved tremendously in the last two decades. According to Deloitte’s Global Powers of Luxury Goods 2018 report, varying economic trends, rapid digital transformation and evolving consumer preferences and tastes are creating a new competitive landscape where traditional corporate strategies are under threat.

The sector has historically operated on a "West versus the Rest" basis, led by Europe and the US. However, with the supply chain and retail network for luxury goods spreading globally, recent trends underline the growing importance of Asia, the Middle East and Latin America, the report noted.

Most industry observers attribute this development to growing sales in emerging markets as well as innovative retail concepts and business models implemented in these regions that attract luxury goods consumers.

Luxury brands have thus refocused their business strategies to capitalise on these changes. Gucci, for instance, has adopted new technologies and retail innovations to create new growth opportunities, Deloitte pointed out.

In 2017, Gucci's e-commerce sales rose by 86 percent, with millennials accounting for half of revenue. Total brand sales increased by 42 percent to €6.2 billion (around US$7.25 billion). Gucci managed the omnichannel integration of its online and in-store brand experience and launched online stores in key markets such as China and the Middle East in 2017. The brand offers personalised customer service through webchat and email. For its Spring/Summer 2018 collection, its flagship stores became interactive art galleries, featuring scannable ads, and augmented and virtual reality experiences. Its impressive digital marketing campaigns have earned Gucci some 45 million followers on its official Instagram, Facebook and Twitter accounts.

Gucci’s experience indicates that the success of a brand, or even an industry, now depends highly on its acceptance by the younger generation.

Customer engagement is also undergoing a transformation. Luxury fashion brands once based their identity on exclusivity, prestige and impeccable service, retaining a dignified distance between themselves and their customers. Nowadays, social media, formerly viewed as too “mass market,” has become an increasingly important marketing tool for brands to communicate with consumers.

Golden era of technological development

The Internet is now an integral part of consumers’ purchasing habits. Millennials and Generation Z (people born in the mid-90s), the driving force of luxury sales growth, seek a personalised shopping experience that seamlessly integrates both online and offline platforms.

“This shift has motivated demand for connective technology such as Augmented Reality (AR) and Artificial Intelligence (AI). By using AR and AI technologies, luxury brands can provide a personalised consumer experience, reach a wider audience, deepen product experience, and build stronger customer relationships,” the Deloitte report said. Jewellery and watch brands can allow customers to try on their products with the support of AR technology. Users can then capture the image and share it with their social network, effectively promoting the brand and its products.

According to the Deloitte report, millennials and Generation Z will represent more than 40 percent of the overall luxury goods market by 2025, compared to around 30 percent in 2016. Luxury brands should change their business models to meet this demand for a high-value, customised shopping experience. Initiatives could include providing more loyalty programmes and invitations to in-store events.

For millennials, the emotional and personal context within which luxury brands appeal to consumers has widened considerably. Luxury brands are supplementing traditional attributes such as quality and scarcity with lifestyle values including sustainability to attract millennial consumers. The emphasis on sustainability can be seen in advertisements, among others. Luxury brands have begun to highlight their use of renewable and organic materials, and now emphasise their efforts to lessen the environmental impact of their production.

Online shopping has also come into its own. According to the Deloitte Swiss Watch Industry Study 2017, only 24 percent of watch executives see shop-based authorised dealers as their most important sales channel, compared to 83 percent in 2014. Some high-end watch brands intentionally reduce the number of authorised dealers to help maintain their aura of prestige and exclusivity. Moreover, up to 67 percent of brands said they would shift their focus to e-boutiques.

Some luxury fashion brands collaborate with well-known e-stores by offering exclusive products online, the report said. Valentino and Yoox Net-a-Porter Group have partnered to create a new omnichannel business model called Next Era, designed to improve each customer’s retail experience. Other brands though opt to change their portfolio structure and adjust inventory in boutiques to create scarcity and thus exclusivity.

Going forward, the biggest challenge for luxury brands is making optimum use of social media without compromising brand values. This entails striking a balance between accessibility and prestigious exclusivity to yield strong financial results.