The future of luxury
We can get all dressed up with somewhere to go again. International borders are steadily opening. With spending down for major chunks of the last two years, Americans have more than $2.5 trillion saved up. All signs point to a surge in the luxury goods market after huge slumps across the board derailed momentum. There are, however, a few factors that could hold the sector back. The future of luxury is a bit murky, but some trends are coming into focus.
Out for Revenge
Everybody’s dealt with the stress of the pandemic in their own ways. No matter who you are, life has changed significantly since March 2020. A lot of people are out to make up for lost time.
With favorite international destinations back open or reopening soon, people who got sick of being at home for so long are booking “revenge travel.” They missed out on the trips they wanted to take for well over a year, so they’re making their next excursions bigger. There’s also a renewed sense that nothing is guaranteed in life, so you might as well live it up and pay a visit to those places you always swore you’d visit someday. That day is here.
And the service providers that missed out on all those bookings — luxury hotels, fine-dining restaurants, private jet and yacht companies — are waiting with open arms. Luxury Cruise line Oceania sold out its 2023 world cruise, with fares ranging from about $50,000 to $150,000 per person, in one day. After a quiet holiday season in 2020, bookings for this festive season started earlier than ever before and haven’t stopped. Demand is so high and competition for space so intense that some are already booking their 2022 holiday season vacations.
The well-heeled are booking new adventures with familiar luxury brands, such as sailings with the Ritz-Carlton Yacht Collection and globe-trotting journeys on Four Seasons private jets. With Virgin Galactic and Blue Origin ushering in the age of space tourism, those who can afford it are eager to head to the edge of space.
As Robertico Croes, director of the Dick Pope Sr. Institute for Tourism Studies at the University of Central Florida, told the Washington Post, “Travel is inherently a luxury item.” It was shut down for a long stretch, but it’s coming roaring back.
The China Problem
As good as augmented and virtual reality are getting, travel is something you have to do in person. Other luxury experiences can take place online, as evidenced by the rise in luxury e-commerce sales since the pandemic began. In 2019, about 12% of luxury goods were purchased online. That doubled in 2020.
“Fashion will never be 90%, but it will certainly be north of 30% to 35% in the next five years or so,” Farfetch founder and CEO José Neves told Time.
Slowly but surely, retail storefronts are giving way to e-commerce, Bain & Company’s “Future of Luxury” report found. Those that remain open will make more use of AI and automation to accommodate shoppers looking for the perfect fit.
But luxury e-commerce’s growth is facing a bump in the road ahead. For the first time, Asia overtook the Americas and Europe to become the leading region for luxury spending. That was largely thanks to China, a huge market that has been increasing luxury spending for a decade-plus.
Rising income inequality in China has led president Xi Jinping to renew efforts at “common prosperity” that will narrow the gap between the ultra-rich and everyone else. Combine that with Evergrande’s debt struggles and the wider problems in China’s real estate market, and there could be a lot fewer luxury purchases coming from the Chinese market.
It’s enough to make investors skittish about the future of luxury brands and take “a cautious view on the sector, mainly because of the lack of visibility around China and concerns around growth normalization after a strong COVID-19 recovery period,” Barclays reported.
Like with any industry, attracting younger generations of customers is a focus of luxury brands. To do that, though, they’ll have to redefine luxury — which sounds like a dirty word to younger people for whom sustainability and inclusion are priorities.
“By 2030, this industry will be drastically transformed. We will not talk about luxury industry anymore, but of the market for insurgent cultural and creative excellence,” Federica Lovato, co-author of the Bain & Company study, said.
Yes, the future of luxury will have to be sustainable, and consignment will be a large part of that. Led by resale sites Poshmark, The RealReal, and ThredUp, the secondhand luxury clothing and accessory market is projected to top $50 billion by 2023. ThredUp says buying a piece of clothing on consignment extends its life by two years and decreases the carbon footprint by 82%. That’s a popular focus for Millennials and Gen Z.
Another factor attracting younger generations to consignment luxury is, relative to older people, they don’t have any money. Millennials own only about 5% of the wealth in the U.S. Of the roughly $7.5 trillion that the more than 70 million Millennials in the U.S. control, between 1.5 and 2% belongs to Mark Zuckerberg.
So, for there to be a future of luxury, luxury is going to have to look different. Farfetch’s Neves is confident it will persist.
“Fashion is part of culture,” he told Time. “… Consumption is not evil. Consumption is essential for the economy. Excessive consumption has its problems, like anything excessive in life.”
As evidenced by the demand-driven supply chain logjams characteristic of the early stages of the COVID economic recovery, at least right now people have cash and are eager to spend it. For now, despite some clouds on the horizon, the future of luxury is bright.