2014 saw a significant drop in global spending on luxury goods. While industry leaders explained how luxury spending in China showed a negative trend for the first time: –1% growth this year due to greater controls on luxury spending and changing consumption patterns and that the growing sanctions against Russia significantly contributed to the negative momentum, Bain & Co observed that 30 million luxury customers were disillusioned.
A combination of factors is driving this downward trend: Many of the traditional spenders of luxury are downsizing and using their money to buy experience than product. Consumers in traditional markets have become more socially aware than they used to be, shunning brands that are perceived as portraying a lifestyle out of tune with both contemporary values and reality. Steady price hikes, above and beyond inflation levels, have also caused disillusion. Most luxury goods brands have upped prices by as much as 70% over the past two to three years in an attempt to bridge the price gap between China and the rest of the world. This of course has led to consumers trading down to more affordable brands particularly in the ready to wear segment, resulting in a “leaking bucket”.
A positive outcome of this slowdown is that luxury marketers will have to work harder to focus on long term sustainable growth. In a time of weaker growth cycle and polarization between the “Absolute and Accessible”, marketers will do well by asking what their customers desire vs pushing product through tried and tested alliances and formulae.
The opportunity in 2020 is to tailor experience and product to specific customers showing divergence of tastes and preferences; an area that has seen lesser focus in an attempt to meet the exponential growth in demand from the “hedonists”, the flashy tribe with new-found wealth. This will drive a new approach to delivering exceptional experience to the different segments through better curation of product and delivery that focuses on “individual” rather than “exclusive”. Imagine customers buying vintage trunks as they enjoy Hôtel du Marc’s neoclassical facades and hospitality in Reims, the capital of France’s Champagne region or trying a new pair of Ferragamo loafers in the Palazzio Ferragamo in Florence a la Sonam Kapoor. The top 10 % of the 150 million customers are likely to feel less betrayed if marketers embrace this new thinking and see this moment as an opportunity to re-energize shoppers and arrest the fast growing epidemic of luxury fatigue.