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Luxury Market Survey: Current Optimism, But Future Concern |  January 16, 2019 (0 comments)

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New York, NY—Luxury brand executives and others in the sector are feeling fairly confident about the state of luxury in 2019, according to the just-released third annual State of Luxury survey, conducted by Luxury Daily and Unity Marketing.

The study, which polled more than 600 luxury-industry insiders, shows palpable optimism among both executives who manage luxury goods and service brands, and the businesses that provide support services to the luxury industry.

56% of luxury insiders believe business conditions are better now than a year ago, and 52% of respondents believe business conditions will improve again next year. Innovation will be the most impactful trend for growth in the luxury market in 2019, said respondents.

But respondents are keeping a wary eye on macro trends—both political and economic—that have the potential to threaten 2019 growth.

Negative impacts from both political instability and shifting macroeconomic trends got a head start in late 2018, as rumors of U.S. trade wars spread; sales in the Chinese luxury market slowed and its tourists spent less abroad; and the political uprising in Paris has luxury leaders worried, finds the study. 

Paris experienced the most luxury retail store openings of any city in 2017, but in 2018 became a battleground between the moneyed and working classes. Police fired tear gas and water cannons to disperse crowds of yellow-vested protesters, while luxury boutiques were boarded up to prevent looting in the riots. French finance minister Bruno Le Maire estimated Paris experienced a sales decline between 20%-40%.

Yellow-vested protesters turned violent in Paris. Image: Telegraph.co.uk

The ripple effects are being felt in the stock market.  The Savigny Luxury Index, compiling the stock values of 18 leading luxury companies, measured a drop in average stock prices in November, driving its level lower than at the beginning of 2018, while both French investment bank Société Général and Goldman Sachs forecast a slowdown in the luxury sector.

Although there is a growing wealth class and those who can afford true luxury have more money than ever to spend on it, it’s going to be harder than ever to reach them. Capgemini, in its World Wealth Report 2018, reported global high-net-worth individual (HNWI) wealth rose 10.6% in 2017, following six consecutive years of wealth gains. Capgemini defines a HNWI as those with investible assets of $1 million or more, excluding primary residence, collectibles, consumables, and consumer durables.

But increasing income inequality is driving rapidly-growing resentment among the working classes, which in turn makes the wealthy nervous. While other luxury centers may not necessarily experience riots, it is likely the wealthy will retreat into the same inconspicuous behavior they exhibited during the Great Recession, eschewing overt displays of wealth or conspicuous consumption of luxury goods.

Other luxury macro-trends for 2019. Besides political and macro-economic shifts, luxury brands must face both a growing digital market and a shrinking consumer base. Even as the ranks of the wealthy grow, their priorities are different from earlier generations. Moreover, these new consumers are digitally native, while luxury brands have been notoriously slow to accept the digital sphere, putting them way behind in their efforts to have relevance with the consumers they desperately need.

“Luxury brands will face a complicated balancing act in 2019 and beyond,” says Pamela N. Danziger, president of Unity Marketing. 

After being slow to accept digital, luxury brands have raced to catch up. With the notable exception of Chanel, most brands now sell online, and many are going deeper into the digital market. Overall, luxury insiders surveyed reported they will spend approximately 8% more on digital advertising in 2019 and nearly 80% of the companies surveyed will focus on website enhancements in 2019.

Too little, too late? To grow, luxury brands need new customers, which to date mainly means Millennials. The Millennial cohort offers a 20+ year supply of new customers—if luxury brands can connect with their idea of what luxury means. 

Related: Recent Reports Portend Major Changes For Luxury Retailing

The key segment most important for luxury brands to attract are what Danziger has termed the HENRYs (High Earners Not Rich Yet). Better educated, more informed, and setting the trends that their lower-earning peers will emulate, most future HNWIs start out as HENRYs. These are the customers that luxury brands need now to nurture for future growth. 

Related: How To Tap Into HENRY Spending Power     

But HENRY Millennials have different ideas about what luxury is, what it means to them, and how they want to participate in it. Above all, they place a higher value on experiences than on tangible luxury goods: the status symbol item is rapidly being replaced by the Instagram-worthy status experience. A recent Euromonitor International survey found that more than 50% of U.S. Millennials prefer to spend money on experiences over things; they want to start checking off boxes on their bucket list by age 40, not 70. 

Taco Bell's "Sunset Heart Hands" commercial is a perfect example of Millennials' love of experiences.

Of course, they’re not living Spartan lives and eschewing material goods altogether, but thanks to technology, they have fingertip access to most of the products the world has to offer. And as far more educated and informed consumers than any generation before them, they’re able to suss out purchases that satisfy both relative and personal value demands.

“The biggest danger that the luxury business faces is irrelevance,” says Mickey Alam Khan, editor-in-chief of Luxury Daily. “There is no other way to sugarcoat this: the luxury business is facing an unprecedented identity crisis. What is its product? How relevant is it to the quality-seeking consumer’s wants, needs and lifestyle?

“How much sunlight to let in before the brand mystique slips out the back door? Is the product really made where the label says it is, key to the authenticity credentials? Do its values resonate with its target audience?”

Increasingly, traditional luxury goods are not making the cut, says Danziger, as HENRYs opt for lower-priced but still premium options from online brands such as Everlane and M. Gemi, or shop at off-price luxury purveyors such as Gilt, Outnet.com, Neiman Marcus’ Last Call, Nordstrom Rack, Saks Off Fifth, or membership sites like Rue La La.

Millennial HENRYs also are increasingly choosing access over ownership, giving rise to both the rental and second-hand markets for luxury. All this means luxury brands are feeling a push-pull conflict between their traditional older wealthy customers who want one type of luxury, and younger, less financially endowed customers and potential customers who want a totally different kind of luxury.

Related: More Key Millennial Intel: Spending Set To Rocket; They Love Secondhand Goods

It’s not an enviable place to be: for most luxury brands, their present fortunes hang on the one and their future depends on the other, say Khan and Danziger. 

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