The Evolution of The Luxury Fashion Market

The Evolution of The Luxury Fashion Market

Written by Sufiana SharuddinSeptember 1, 2020

The Evolution of The Luxury Fashion Market

The luxury fashion market is in for a demographic transformation.

As consumer behaviours are shifting towards a more digital and experiential trend, luxury brands are realising the need to reinvent themselves.

Just a mere decade ago, the premium market was dominated by baby boomers and Gen X – those born after the World War through to 1980.

Fast forward today, the majority of luxury consumers are barely over 40 years old. Gen Z and Millenials are currently the largest consumer groups in retail.

According to consulting firm McKinsey, these cohorts represent around $350 billion of spending power in the United States alone.

Growing up in the era of the internet, this new-gen of luxury fashion consumers have a completely different set of values. From the brands they aspire to the way they shop, tapping into this market requires a radically robust retail strategy, that is equally effective online as it is offline.

Taking The Digital Leap

It is this connection that many luxury brands are slowly gaining a foothold in, despite not being fervent adopters of social media.

Today, most top players have mastered the art of the digital arena with a strong presence across main channels in content – Facebook, Twitter, Instagram, Twitter – particularly the video generation.

But none came close to the influence of one brand: Gucci.

As a highly coveted luxury fashion brand among young consumers, Gucci prides itself as a leader in digital.

It has over 40 million followers on Instagram, nearly 6 million followers on Twitter, and a massive presence on Chinese social platforms like WeChat. In other words, the luxury brand is entirely ‘plugged in’ with its online base.

While most luxury brands have been hesitant to enter the omnichannel realm, Gucci has taken bold steps to stay ahead of the digital curve.

It started with a complete e-commerce overhaul with the arrival of new creative director, Alessandro Michele in 2016.

Michele’s vision for a new interactive online experience required a complete shift in the online customer journey and content integration across channels. After the new website went live, the first financial quarter under Michele’s direction saw the brand’s e-commerce website contributing 6% of Gucci’s total revenue.

However, a large part of Gucci’s online consumption was still controlled by wholesalers and luxury e-tailers such as Farfetch, Net-a-Porter and more. To this day, Gucci remains as one of the best performing luxury brands online.

Gucci emerges as one of the top five brands at Farfetch, Net-a-Porter and Matchesfashion - The Evolution of The Luxury Fashion Market
Gucci emerges as one of the top five brands at Farfetch, Net-a-Porter and Matchesfashion. Image Source: Omnilytics Dashboard.

Since then, Gucci’s parent company, Kering have expanded the brand’s DTC capabilities in an effort to redirect online traffic from these retailers and marketplaces back to its own e-commerce platform.

This year, Gucci announced a new video-based shopping feature called ‘Gucci Live’, spurred by the latest live-streaming craze.

It recreates the personalised experience of visiting a physical store with a sales assistant tending solely to the customer.

The video service connects consumers directly to Gucci staff based in the Florence service centre and operates independently with staff dedicated specifically for this new hybrid shopping method.

With more brands leveraging the power of digital innovations such as live-streaming and AR to overcome physical barriers in e-commerce, it begs the question: are physical stores are even relevant in today’s society?

Are Physical Stores Dead?

Display windows are filled with mannequins sporting the latest styles and malls are still teeming with avid shoppers, so it seems retail stores have not been rendered obsolete.

They still continue playing a key role, accounting for 75% of forecast sales in 2025.

omnilytics retail data Bain luxury market study statistics blog
Source: Bain Luxury Goods Worldwide Market Study

As digital continues to rise, luxury brands are shifting the approach of their brick-and-mortar stores, opting for flagship outlets instead. These stores focus on the experience and feature display showrooms to drive online sales, rather than compete against it.

Branding studio Base Design partner Geoff Cook said, “It is more important than ever to have fewer physical stores that offer heightened experiences that can be shared,” he said.

“Millennials are more focused on experiences which inherently incorporate what they value: sharing time together, transparency or realness, and perhaps learning something or doing good along the way.”

Hermès is a good example of experiential retailing. The brand behind the iconic Birkin bag created an in-store experience akin to a museum visit in 2016, opening a slew of pop-up stores in four international cities –Strasbourg, Amsterdam, Munich, and Kyoto.

At these laundromat-themed stores, customers are able to dip dye their own scarves or opt for limited edition ones designed specifically for that pop-up.

Speaking of experiences, millennials are not just looking for quality. That’s a given.

What they want from a brand are authenticity and ethical impact.

Luxury and The Ecosystem

Generations ago, high-end brands have only one purpose: Create a superior and exclusive product to maintain the status quo of the rich and famous.

Today, it’s a whole different story.

“[Millennials are] the first generation with radically different behaviours and attitudes towards all consumption and lifestyle to the generation before.”

– Co-author of the Bain study Federica Levato

According to a recent Deloitte study on millennial luxury buying habits, 89% of U.S. millennials often consider whether a brand is ‘sustainable and ethical’ before making a purchasing decision.

In addition, a Nielsen study revealed that 81% of millennials expect the brands that they buy into to be transparent in their marketing and actively talk about their sustainability impact.

So how should high-end brands respond to this change and build a more sustainable brand story?

By showing authenticity.

Stella McCartney, founder of namesake sustainable luxury fashion label, can relate to being authentic as a brand.

“We started authenticity,” she said. “We don’t fake it, we don’t pay people. The design process is so heartfelt at Stella McCartney. I don’t have to try too hard, I think people believe when it’s honest and know when it’s not.”

Renowned luxury jewellery and speciality retailer, Tiffany & Co, is one of the first in the industry to source metals and diamonds from responsible mining companies. They also created a foundation working on reef conservation and supporting mining communities.

Andy Hart, Head of Diamond Supply, describes his reasoning for the shift in a more trustworthy brand: “I just ask myself, if I had to pull back the curtain on our factories, would I want our customers to see what’s there?”

omnilytics retail data tiffany & co foundation website sustainable luxury blog
Image Source: Tiffany & Co Foundation

Recognising the brand value connection, the Kering group, umbrella for high-end labels such as Gucci and Balenciaga, is progressively adopting the use of renewable raw materials in response to sustainability.

“Our ambition is to redefine luxury to help influence and drive these positive changes.”

– Marie-Claire Daveu, Kering’s Chief Sustainability Officer

And they certainly walk the walk, with at least one of their labels influencing the way high fashion should be marketed to the younger generation.

The Age of Hyped Products

Since millennials generally have a lower disposable income than their predecessors, many luxury brands chose to segment them as less important targets in the past. But the success of luxury streetwear proved them extremely wrong.

Despite being the most cost-driven consumer groups, Gen Z’s insatiable hunger for elevated streetwear is something no one could have expected. Its foothold on today’s mainstream fashion might seem surprising to most but in principle, streetwear shares many common values with luxury.

Niche markets, limited quantities and high resale values are all familiar terms in both segments. Moreover, the drop sales tactic, which involves releasing a limited quantity of products at a time to generate scarcity, has been adopted by many luxury brands such as Louis Vuitton and Burberry.

Further amplified by Gen Z’s social media prowess, these product drops are an effective marketing tool for brands to stand out and cut through the online noise.

The fluctuation of resale value of the Dior Jordan 1s - The Evolution of The Luxury Fashion Market
The fluctuation of the resale value of the Dior Jordan 1s. Image Source: Omnilytics Dashboard

A perfect example of this phenomenon was the recent collaboration between Dior and the Jordan brand. The co-designed version was one of the most highly anticipated releases in history, limited to 8,500 pairs only.

Initially delayed due to the Covid-19 crisis, the shoe retailing for $2,000 was sold out immediately. After its release, the resale value of the shoe quickly surged by 85%. Thus far, the value of the shoes has peaked at $14,000 on Stock X as tracked by Omnilytics.

What Does This Mean For Luxury Fashion?

The problem we’re facing now is not about the lack of data but the overwhelming amount of it.

From social mentions, browsing history, purchasing trends, and spending habits, luxury brands can discover what their young consumers are buying, when they choose to buy and what they might buy next.

With the wave of next-generation luxury buyers hitting the market right now, high fashion cannot afford to be left behind.

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